Pigou Pushes Preferences: Decarbonisation and Endogenous Values

37 Pages Posted: 21 Feb 2019

See all articles by Linus Mattauch

Linus Mattauch

University of Oxford

Cameron Hepburn

University of Oxford

Nicholas Stern

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Date Written: 2018

Abstract

Avoiding unmanageable climate change implies that global greenhouse gas emissions must be reduced rapidly. A significant body of literature shows that policy instruments such as carbon prices can make an important contribution to this goal. In contrast, changes in preferences or values are rarely considered, even though other major socioeconomic transitions - such as those from reducing smoking and drink-driving - have succeeded partly because values have changed. This article examines the impact of climate policy-induced changes in consumers’ values. We demonstrate that when changes in values through policies occur, and are not accounted for, such policies are inefficient. First, target-achieving carbon taxes must be adjusted if they crowd-in or -out social preferences. Second, when the urban built environment changes mobility preferences, low-carbon infrastructure investments are more valuable. Third, policy-induced changes in preferences for active travel and low-meat diets could increase the net benefits of the transition to zero emissions, in turn affecting optimal policy.

Keywords: climate change, carbon pricing, endogenous preferences, crowding-in, transport infrastructure, health co-benefit

JEL Classification: A120, D910, H230, Q540, Q580

Suggested Citation

Mattauch, Linus and Hepburn, Cameron and Stern, Nicholas, Pigou Pushes Preferences: Decarbonisation and Endogenous Values (2018). CESifo Working Paper No. 7404, Available at SSRN: https://ssrn.com/abstract=3338758

Linus Mattauch (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Cameron Hepburn

University of Oxford ( email )

Oxford
United Kingdom

Nicholas Stern

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

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