TY - RPRT A1 - Kalkuhl, Matthias A1 - Franks, Max A1 - Gruner, Friedemann A1 - Lessmann, Kai A1 - Edenhofer, Ottmar T1 - Pigou’s Advice and Sisyphus’ Warning BT - Carbon Pricing with Non-Permanent Carbon-Dioxide Removal T2 - CEPA Discussion Papers N2 - Carbon dioxide removal from the atmosphere is becoming an important option to achieve net zero climate targets. This paper develops a welfare and public economics perspective on optimal policies for carbon removal and storage in non-permanent sinks like forests, soil, oceans, wood products or chemical products. We derive a new metric for the valuation of non-permanent carbon storage, the social cost of carbon removal (SCC-R), which embeds also the conventional social cost of carbon emissions. We show that the contribution of CDR is to create new carbon sinks that should be used to reduce transition costs, even if the stored carbon is released to the atmosphere eventually. Importantly, CDR does not raise the ambition of optimal temperature levels unless initial atmospheric carbon stocks are excessively high. For high initial atmospheric carbon stocks, CDR allows to reduce the optimal temperature below initial levels. Finally, we characterize three different policy regimes that ensure an optimal deployment of carbon removal: downstream carbon pricing, upstream carbon pricing, and carbon storage pricing. The policy regimes differ in their informational and institutional requirements regarding monitoring, liability and financing. T3 - CEPA Discussion Papers - 62 KW - Carbon Dioxide Removal KW - Carbon Capture KW - Social Cost of Carbon KW - Climate Policy KW - Impermanence Y1 - 2023 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:517-opus4-575882 SN - 2628-653X IS - 62 ER - TY - RPRT A1 - Hänsel, Martin C. A1 - Franks, Max A1 - Kalkuhl, Matthias A1 - Edenhofer, Ottmar T1 - Optimal carbon taxation and horizontal equity BT - A welfare-theoretic approach with application to German household data T2 - CEPA Discussion Papers N2 - We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns by considering heterogeneous energy efficiencies. By deriving first- and second-best rules for policy instruments including carbon taxes, transfers and energy subsidies, we then investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first- best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency. T3 - CEPA Discussion Papers - 28 KW - carbon price KW - horizontal equity KW - redistribution KW - renewable energy subsidies KW - climate policy KW - just transition Y1 - 2021 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:517-opus4-498128 SN - 2628-653X IS - 28 ER - TY - RPRT A1 - Franks, Max A1 - Kalkuhl, Matthias A1 - Lessmann, Kai T1 - Optimal Pricing for Carbon Dioxide Removal Under Inter-Regional Leakage T2 - CEPA Discussion Papers N2 - Carbon dioxide removal (CDR) moves atmospheric carbon to geological or land-based sinks. In a first-best setting, the optimal use of CDR is achieved by a removal subsidy that equals the optimal carbon tax and marginal damages. We derive second-best subsidies for CDR when no global carbon price exists but a national government implements a unilateral climate policy. We find that the optimal carbon tax differs from an optimal CDR subsidy because of carbon leakage, terms-of-trade and fossil resource rent dynamics. First, the optimal removal subsidy tends to be larger than the carbon tax because of lower supply-side leakage on fossil resource markets. Second, terms-of-trade effects exacerbate this wedge for net resource exporters, implying even larger removal subsidies. Third, the optimal removal subsidy may fall below the carbon tax for resource-poor countries when marginal environmental damages are small. T3 - CEPA Discussion Papers - 43 KW - carbon pricing KW - trade KW - unilateral climate policy KW - terms-of-trade effects KW - removal subsidies Y1 - 2022 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:kobv:517-opus4-538080 SN - 2628-653X IS - 43 ER -