Working Papers
Optimal Carbon Prices in an Unequal World: The Role of Regional Welfare Weights
[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 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 the optimal uniform carbon prices implied by different welfare weights and heterogeneous regional preferences over climate policy stringency. In calibrated simulations, I find that accounting for global inequality reduces optimal global emissions relative to an inequality-insensitive benchmark. This holds both when carbon prices are regionally differentiated, with emissions 21% lower, and when they are constrained to be globally uniform, with the uniform carbon price 15% higher.
Coase Meets Negishi: A Property Rights Rationale for Welfare Weights in Economies with Public Goods
with Matthew Kotchen and Matthew Gordon
[working paper; new version available soon]
Abstract:
The distributional effects of climate change are at the heart of international climate negotiations. This paper shows how different property rights regimes, ranging from “right to pollute” to “right to no pollution”, rationalize different welfare weights in climate-economic models with heterogeneous regions. Commonly used Negishi weights separate the issues of climate change and global wealth inequality. However, we show that the separation of these issues does not yield a unique Pareto efficient allocation since climate change and climate policies have distributional consequences of their own. As a result, different property rights characterize a set of efficient allocations. In addition to Negishi weights, which implicitly reflect mixed property rights, we define beneficiary pays and polluter pays weights, derived from transfer rules consistent with right to pollute and right to no pollution property rights, respectively. These weights correspond to distinct Pareto efficient allocations that differ only in the distribution of the cost burden of climate damages and abatement, and we show how nations’ characteristics shape their preferences for different property rights regimes. Unlike the Negishi solution, the other efficient allocations involve international transfers for abatement and climate damages, providing theoretically grounded definitions for climate mitigation finance and Loss and Damage payments—both widely discussed in international negotiations. We use calibrated simulations to illustrate the distributional implications of different property rights regimes.
Work in Progress
Welfare-Maximizing Carbon Prices and the Role of 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. I 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. I show that uniform carbon prices maximize global utilitarian welfare only if demanding transfer conditions are satisfied. In calibrated simulations, I 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.
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.
Distributional Weights and Instrument Choice
with Robert Hahn