How Much Carbon Pricing is in Countries' Own Interests? The Critical Role of Co-Benefits

Abstract

This paper calculates, for the top twenty emitting countries, how much pricing of carbon dioxide (CO₂) emissions is in their own national interests due to domestic co-benefits. On average, nationally efficient prices are substantial, $57.5 per ton of CO₂ (for year 2010), reflecting primarily health co-benefits from reduced air pollution at coal plants and, in some cases, reductions in automobile externalities (net of fuel taxes/subsidies). Pricing co-benefits reduces CO₂ emissions from the top twenty emitters by 13.5 percent. However, co-benefits vary dramatically across countries (e.g., with population exposure to pollution) and differentiated pricing of CO₂ emissions therefore yields higher net benefits (by 23 percent) than uniform pricing.

Keywords: carbon pricing, co-benefits, air pollution, fuel taxes, top twenty emitters

JEL Classification: H23, Q48, Q54, Q58