Reflections on the International Coordination of Carbon Pricing

18 Pages Posted: 28 Jul 2016

See all articles by Ian Parry

Ian Parry

International Monetary Fund (IMF)

Date Written: June 30, 2016

Abstract

The efficiency effects of carbon pricing depend on how it impacts distortions in fossil fuel markets, most notably from local air pollution externalities. By offsetting these distortions, carbon pricing may generate significant net economic benefits, so it is in countries own interests to implement carbon pricing unilaterally rather than waiting for others to act. Net benefits are further enhanced if carbon pricing is revenue neutral and broader taxes cause substantial avoidance and evasion. Flexible international pricing regimes, allowing countries with high domestic environmental benefits or fiscal needs to set higher carbon prices, are more efficient than globally uniform carbon prices.

Keywords: carbon pricing, non-carbon externalities, air pollution, welfare effects, international price floors, fiscal linkages

JEL Classification: Q540, Q580, H230

Suggested Citation

Parry, Ian, Reflections on the International Coordination of Carbon Pricing (June 30, 2016). CESifo Working Paper Series No. 5975. Available at SSRN: https://ssrn.com/abstract=2815373

Ian Parry (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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