What are the Costs of Meeting Distributional Objectives for Climate Policy?
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Ian W. H. Parry
Abstract
This paper develops an analytical model to quantify the costs and distributional effects of various fiscal options for allocating the large rents created under proposed cap-and-trade programs to reduce domestic, energy-related CO2 emissions. The trade-off between cost effectiveness and distribution is striking. The welfare costs of different policies, accounting for linkages with the broader fiscal system, range from negative $6 billion/year to a positive $53 billion/year in 2020 (or from -$12 to almost $100 per ton of CO2 reductions). The least costly policy involves auctioning all allowances with revenues used to cut income taxes, while the most costly policies involve recycling revenues in lump-sum dividends or grandfathering emissions allowances. The least costly policy is regressive, however, while the dividend policy is progressive. Grandfathering permits is both costly and regressive. A distribution-neutral policy entails costs of $18 to $42 per ton.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Symposium
- Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures
- Comment on 'Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures'
- Equity, Heterogeneity and International Environmental Agreements
- Comment on "Equity, Heterogeneity and International Environmental Agreements"
- Climate Policy's Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade
- Comment on "Climate Policy's Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade"
- The Social Evaluation of Intergenerational Policies and Its Application to Integrated Assessment Models of Climate Change
- Comment on "The Social Evaluation of Intergenerational Policies and Its Application to Integrated Assessment Models of Climate Change"
- What are the Costs of Meeting Distributional Objectives for Climate Policy?
- Comment on "What are the Costs of Meeting Distributional Objectives for Climate Policy?"
- CIM-EARTH: Framework and Case Study
- Comment on "CIM-EARTH: Framework and Case Study"
- The Global Effects of Subglobal Climate Policies
- Comment on "The Global Effects of Subglobal Climate Policies"
- Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices
- Comment on "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices"
- The Distributional Impact of Climate Policy
- Comment on "The Distributional Impact of Climate Policy"
- On the Economics of Climate Policy
- Comment on "On the Economics of Climate Policy": Is Climate Change Mitigation the Ultimate Arbitrage Opportunity?
