Climate Policy Enhances Efficiency: A Macroeconomic Portfolio Effect

38 Pages Posted: 27 Jan 2015

See all articles by Jan Siegmeier

Jan Siegmeier

Technische Universität Berlin (TU Berlin)

Linus Mattauch

Mercator Research Institute on Global Commons and Climate Change (MCC)

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Date Written: January 26, 2015

Abstract

Carbon pricing regulates emission flows and collects rents from underlying fossil resource stocks. The resulting investment shift implies lower climate policy costs and improved welfare if capital is underaccumulated. We prove that under emission trading, such a beneficial macroeconomic portfolio effect between fossil stocks and capital is induced if some permits are auctioned. Alternatively, a carbon tax also induces a portfolio effect, but cannot simultaneously implement a given mitigation path and collect an arbitrary rent share. Finally, treating the right to recurrently receive a share of total emission permits as a tradable asset is formally, but not politically equivalent.

Keywords: carbon pricing, resource rent taxation, overlapping generations, capital underaccumulation

JEL Classification: E220, H210, H230, Q300, Q540

Suggested Citation

Siegmeier, Jan and Mattauch, Linus and Edenhofer, Ottmar, Climate Policy Enhances Efficiency: A Macroeconomic Portfolio Effect (January 26, 2015). Available at SSRN: https://ssrn.com/abstract=2555565 or http://dx.doi.org/10.2139/ssrn.2555565

Jan Siegmeier (Contact Author)

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

Linus Mattauch

Mercator Research Institute on Global Commons and Climate Change (MCC) ( email )

Torgauer Straße 12-15
Berlin, 10829
Germany

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

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