Technology Beats Capital - Sharing the Carbon Price Burden in Federal Europe

44 Pages Posted: 6 Mar 2020

See all articles by Christina Roolfs

Christina Roolfs

Potsdam-Institut für Klimafolgenforschung (PIK); Technische Universität Berlin

Beatriz Gaitan

Potsdam-Institut für Klimafolgenforschung (PIK)

Ottmar Edenhofer

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

Kai Lessmann

Potsdam Institute for Climate Impact Research (PIK)

Date Written: February 6, 2020

Abstract

Passing federal environmental policy reform is a challenge as the approval of interest groups such as consumers and state-level governments is often a prerequisite. Among others, the burden sharing's progressivity has a large impact on reform approval. We investigate how carbon tax payments by states to a federal authority are influenced by differences in technological emission intensity and wealth and show how they can turn out to be at the expense of poor states. We show that a uniform federal carbon tax that is endorsed by all states with equal per capita transfers can theoretically put a higher burden on poorer states than richer states. The opposite applies for transfers based on historical emissions (sovereignty transfers) which reduce the burden of emission-intensive states. We test our results numerically in a general equilibrium model with a vertical federalism governance structure calibrated to the European Union. Our simulations show that a federal minimum emissions tax with sovereignty transfers is twice as high as for equal per capita transfers and also has a progressive effect.

Keywords: Emission Regulation, Federalism, Unanimity, Transfers, Pareto-improving policy, European Union

JEL Classification: H77, H23, Q58, H87, H62

Suggested Citation

Roolfs, Christina and Gaitan, Beatriz and Edenhofer, Ottmar and Lessmann, Kai, Technology Beats Capital - Sharing the Carbon Price Burden in Federal Europe (February 6, 2020). Available at SSRN: https://ssrn.com/abstract=3533251 or http://dx.doi.org/10.2139/ssrn.3533251

Christina Roolfs (Contact Author)

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Technische Universität Berlin

Straße des 17
Juni 135
Berlin, 10623
Germany

Beatriz Gaitan

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg A31
Potsdam, 14412
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

Kai Lessmann

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

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

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