Optimal carbon pricing with fluctuating energy prices — emission targeting vs. price targeting

  • Prices of primary energy commodities display marked fluctuations over time. Market-based climate policy instruments (e.g., emissions pricing) create incentives to reduce energy consumption by increasing the user cost of fossil energy. This raises the question of whether climate policy should respond to fluctuations in fossil energy prices? We study this question within an environmental dynamic stochastic general equilibrium (E-DSGE) model calibrated on the German economy. Our results indicate that the welfare implications of dynamic emissions pricing crucially depend on how the revenues are used. When revenues are fully absorbed, a reduction in emissions prices stabilizes the economy in response to energy price shocks. However, when revenues are at least partially recycled, a stable emissions price improves overall welfare. This result is robust to different modeling assumptions.

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Metadaten
Author details:Alkis Blanz, Ulrich EydamORCiDGND, Maik HeinemannORCiDGND, Matthias KalkuhlORCiDGND
URN:urn:nbn:de:kobv:517-opus4-561049
DOI:https://doi.org/10.25932/publishup-56104
ISSN:2628-653X
Title of parent work (English):CEPA Discussion Papers
Publication series (Volume number):CEPA Discussion Papers (51)
Publication type:Working Paper
Language:English
Publication year:2022
Publishing institution:Universität Potsdam
Release date:2022/09/20
Tag:E-DSGE; climate policy; energy prices; welfare
Issue:51
Number of pages:12
RVK - Regensburg classification:AR 28300, QT 800, QT 000, MG 15915
Organizational units:Zentrale und wissenschaftliche Einrichtungen / Center for Economic Policy Analysis (CEPA)
Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften / Fachgruppe Volkswirtschaftslehre
DDC classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL classification:E Macroeconomics and Monetary Economics / E6 Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / E62 Fiscal Policy
E Macroeconomics and Monetary Economics / E6 Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / E64 Incomes Policy; Price Policy
Q Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Q4 Energy / Q43 Energy and the Macroeconomy
Q Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Q5 Environmental Economics / Q52 Pollution Control Adoption Costs; Distributional Effects; Employment Effects (Updated!)
Peer review:Nicht referiert
License (German):License LogoKeine öffentliche Lizenz: Urheberrechtsschutz
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