Working Papers
Optimal Carbon Prices in an Unequal World: The Role of Regional Welfare Weights
Awarded the CESifo Distinguished Affiliate Award
[arXiv, latest version]
Abstract:
How should nations price carbon? This paper examines how the treatment of global inequality, captured by regional welfare weights, affects optimal carbon prices. I develop theory and derive a sufficient statistic to identify the conditions under which accounting for differences in marginal utilities of consumption across countries leads to more stringent global climate policy in the absence of international transfers. I further establish a connection between optimal uniform carbon prices under different welfare weights and heterogeneous regional preferences over climate policy stringency. In calibrated simulations, accounting for global inequality reduces optimal global emissions relative to an inequality-insensitive benchmark. Across calibrations, emissions are 22–42% lower under regionally differentiated carbon prices, while optimal uniform carbon prices are 16–98% higher. Shapley decompositions identify disproportionate marginal climate damages and faster population growth in poorer countries as the main drivers.
Coase Meets Negishi: Property Rights, Welfare Weights, and Distributional Consequences in Climate Economics
with Matthew Gordon and Matthew Kotchen
[working paper]
Abstract:
We develop a property-rights based approach for defining welfare weights in economic models of climate change. Whether there is a “right to pollute” or a “right to no pollution” is increasingly contested in legislatures, courts, and international climate negotiations. We show how these notions of property rights can provide the basis for “Coasean welfare weights” that are applicable in multilateral public goods settings. Distributional questions are addressed through positive analysis, conditional on property rights, rather than normative views about redistribution. The implied transfers are consistent with a bargained solution over the net benefits of addressing climate change and reflect the value of property rights over emissions. The approach defines efficient allocations that generate Pareto improvements, in contrast to commonly used Negishi weights. We implement the approach in a global integrated assessment model to quantify what countries have at stake in ongoing political and legal debates about emissions-related property rights.
Work in Progress
Welfare-Maximizing Carbon Prices: Inequality and International Climate Finance
with Kenneth Gillingham
Abstract:
What are the welfare-maximizing carbon prices given limited international transfers? This paper examines how the availability of international climate finance—a central component of global climate policy—affects optimal carbon prices under an inequality-sensitive utilitarian social welfare function. We theoretically analyze both the effect of an exogenous quantity of international transfers for mitigation and the jointly optimal policy package of carbon prices and transfers when the transfer quantity is endogenous to climate policy. We show that uniform carbon prices maximize global utilitarian welfare only if demanding transfer conditions are satisfied. In calibrated simulations, we find that the Paris Agreement’s $100 billion annual transfer substantially reduces optimal global emissions if directed toward mitigation projects in developing countries. Global emissions are 31% lower compared to a standard policy featuring inequality-insensitive optimal carbon prices and no international transfers.
Distributional Weights and Instrument Choice
with Robert Hahn
Estimating the Income Elasticity of Climate Change Impacts
Abstract:
It is often stated that poorer countries will be disproportionately impacted by climate change. This study evaluates whether, and to what extent, this will likely be the case by providing empirically grounded projections of the relationship between income and climate impacts, often characterized as the income elasticity of climate impacts. Most regional and global point estimates of this elasticity fall between 0.5 and 1, indicating that poorer countries are likely to bear a disproportionate share of climate damages. Furthermore, I find that these estimates vary by region, projection year, socioeconomic scenario, and the model underlying the temperature-damage response function. These findings have important implications for determining the optimal stringency of global climate policy in second-best settings and could also inform efforts to address the distributional effects of climate change.
Ranking U.S. Climate Policies to Improve Air Pollution and Health Equity
with Frank Errickson, Mark Budolfson, Maddalena Ferranna, Wei Peng, Noah Scovronick, Jinyu Shiwang, and Vivek Srikrishnan; early-stage
Description:
This project explores the impacts of different climate policies on the distribution of the co-benefits associated with local air pollution reductions and investigates how equity considerations shape policy preferences.