Download This PaperTime-Consistent Carbon Pricing: The Role of Carbon Contracts for Differences
37 Pages Posted: 15 Apr 2020
Date Written: April 2020
Abstract
Carbon pricing decisions by governments are prone to time-inconsistency, which causes the private sector to underinvest in emission-reducing technologies. We show that incentives for decarbonization can be improved if complementing carbon pricing with carbon contracts for differences, where the government commits to pay a fixed carbon price level to the investors. We derive conditions under which the government is willing to “tie its hands” with the contracts.
Keywords: Carbon pricing, time-inconsistency, green technology, climate policy, carbon contracts
JEL Classification: C73,L51,O31,Q58
Suggested Citation: Suggested Citation
Chiappinelli, Olga and Neuhoff, Karsten, Time-Consistent Carbon Pricing: The Role of Carbon Contracts for Differences (April 2020). DIW Berlin Discussion Paper No. 1859, Available at SSRN: https://ssrn.com/abstract=3576402 or http://dx.doi.org/10.2139/ssrn.3576402
Do you have a job opening that you would like to promote on SSRN?
Feedback
Feedback to SSRN