1932

Abstract

Climate change has in recent years moved to the forefront of the policy scene. At the same time, the research literature on macroeconomic aspects of climate change has grown and broadened significantly. In this review, we survey and discuss this literature, with special attention given to results that help shed light on important qualitative questions regarding how an optimal carbon tax should be set. The review covers topics such as spatial aspects of optimal taxes, interactions with other taxes, uncertainty, technological change, and the qualitative time profile of the optimal tax.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-100814-124951
2015-10-05
2024-10-11
Loading full text...

Full text loading...

/deliver/fulltext/resource/7/1/annurev-resource-100814-124951.html?itemId=/content/journals/10.1146/annurev-resource-100814-124951&mimeType=html&fmt=ahah

Literature Cited

  1. Acemoglu D, Aghion P, Bursztyn L, Hemous D. 2012a. The environment and directed technical change. Am. Econ. Rev 102:131–66 [Google Scholar]
  2. Acemoglu D, Akcigit U, Hanley D, Kerr W. 2012b. The transition to clean technology. NBER Work. Pap. 20743
  3. Acemoglu D, Golosov M, Tsyvinski A. 2011. Political economy of Ramsey taxation. J. Public Econ. 95:467–75 [Google Scholar]
  4. Aghion P, Dechezleprêtre A, Hemous D, Martin R, Van Reenen J. 2015. Carbon taxes, path dependency and directed technical change: evidence from the auto industry. J. Polit. Econ Forthcoming [Google Scholar]
  5. Alley RB, Marotzke J, Nordhaus WD, Overpeck JT, Peteet DM et al. 2003. Abrupt climate change. Science 299:2005–10 [Google Scholar]
  6. Anderson EW, Brock WA, Hansen LP, Sanstad A. 2014. Robust analytical and computational explorations of coupled economic-climate models with carbon-climate response. Work. Pap. 13-05, RDCEP
  7. Angelopoulos K, Economides G, Philippopoulos A. 2010. What is the best environmental policy? Taxes, permits and rules under economic and environmental uncertainty. Work. Pap. 2,980, CESifo
  8. Annicchiarico B, di Dio F. 2013.Environmental policy and macroeconomic dynamics in a New Keynesian model. Res. Pap. 286, CEIS, Univ. Rome Tor Vergata
  9. Arrow KJ, Cline WR, Mäler K-G, Munasinghe M, Squitieri R, Stiglitz JE. 1996. Intertemporal equity, discounting, and economic efficiency. Climate Change 1995: Economic and Social Dimensions of Climate Change. Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change Bruce JP, Lee H, Haites EF. for IPCC, pp. 130–44. Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  10. Atkeson A, Chari VV, Kehoe PJ. 1999. Taxing capital income: a bad idea. Fed. Reserve Bank Minneap. Q. Rev. 23:3–18 [Google Scholar]
  11. Azzimonti M, Sarte PD, Soares J. 2009. Distortionary taxes and public investment when government promises are not enforceable. J. Econ. Dyn. Control 33:1662–81 [Google Scholar]
  12. Barrage L. 2014. Optimal dynamic carbon taxes in a climate-economy model with distortionary fiscal policy. Unpub. Pap., Yale Univ.
  13. Bosello F, Carraro C, De Cian E. 2010. Climate policy and the optimal balance between mitigation, adaptation and unavoided damage. Clim. Change Econ. 1:71–92 [Google Scholar]
  14. Bovenberg AL, De Mooij RA. 1994. Environmental levies and distortionary taxation. Am. Econ. Rev 84:1085–89 [Google Scholar]
  15. Bovenberg AL, Goulder LH. 1996. Optimal environmental taxation in the presence of other taxes: general-equilibrium analyses. Am. Econ. Rev. 86985–1000 [Google Scholar]
  16. Bovenberg AL, van der Ploeg F. 1994. Environmental policy, public finance and the labour market in a second-best world. J. Public Econ. 55:349–90 [Google Scholar]
  17. Brock W, Engström G, Grass D, Xepapadeas A. 2013. Energy balance climate models and general equilibrium optimal mitigation policies. J. Econ. Dyn. Control 37:2371–96 [Google Scholar]
  18. Brock W, Engström G, Xepapadeas A. 2014a. Energy balance climate models, damage reservoirs and the time profile of climate change policy. The Oxford Handbook of the Macroeconomics of Climate Change Bernard L, Semmler W. 19–52 Oxford, UK: Oxford Univ. Press [Google Scholar]
  19. Brock W, Engström G, Xepapadeas A. 2014b. Spatial climate-economic models in the design of optimal climate policies across locations. Eur. Econ. Rev 69:78–103 [Google Scholar]
  20. Budyko MI. 1969. The effect of solar radiation variations on the climate of the earth. Tellus 21:611–19 [Google Scholar]
  21. Cai Y, Judd KL, Lontzek TS. 2012. DSICE: a dynamic stochastic integrated model of climate and economy. Work. Pap. 12-02, RDCEP
  22. Cai Y, Judd KL, Lontzek TS. 2013. The social cost of stochastic and irreversible climate change. NBER Work. Pap. 18704
  23. Chamley C. 1986. Optimal taxation of capital income in general equilibrium with infinite lives. Econometrica 54:607–22 [Google Scholar]
  24. Chichilnisky G, Heal G. 1994. Who should abate carbon emissions? An international viewpoint. Econ. Lett 44:443–49 [Google Scholar]
  25. Chichilnisky G, Heal G. 2000. Environmental Markets: Equity and Efficiency New York: Columbia Univ. Press [Google Scholar]
  26. Chichilnisky G, Heal G, Starrett D. 2000. Equity and efficiency in environmental markets: global trade in carbon dioxide emissions. See Chichilnisky & Heal 2000, pp. 46–67
  27. Clarke HR, Reed WJ. 1994. Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse. J. Econ. Dyn. Control 18:991–1010 [Google Scholar]
  28. Clarke L, Böhringer C, Rutherford T. 2009. International, U.S. and EU climate change control scenarios: results from EMF 22. (Spec. Issue.). Energy Econ. 31:Suppl. 263–306 [Google Scholar]
  29. Cropper ML. 1976. Regulating activities with catastrophic environmental effects. J. Environ. Econ. Manag 3:1–15 [Google Scholar]
  30. Crost B, Traeger CP. 2011. Risk and aversion in the integrated assessment of climate change. CUDARE Work. Pap. 1104R, Dep. Agric. Resour. Econ., Univ. Calif., Berkeley
  31. Desmet K, Rossi-Hansberg E. 2012. On the spatial economic impact of global warming. NBER Work. Pap. 18546
  32. Diamond PA, Mirrlees JA. 1971a. Optimal taxation and public production. I. Production efficiency. Am. Econ. Rev 61:8–27 [Google Scholar]
  33. Diamond PA, Mirrlees JA. 1971b. Optimal taxation and public production. II. Tax rules. Am. Econ. Rev 61:261–78 [Google Scholar]
  34. Dissou Y, Karnizova L. 2012. Emissions cap or emissions tax? A multi-sector business cycle analysis. Work. Pap. 1210E, Dep. Econ., Univ. Ottawa
  35. Engström G, Gars J. 2014. Climatic tipping points and optimal fossil fuel use. Discuss. Pap., Beijer
  36. Fischer C, Heutel G. 2013. Environmental macroeconomics: environmental policy, business cycles, and directed technical change. Annu. Rev. Resour. Econ 5:197–210 [Google Scholar]
  37. Fischer C, Springborn M. 2011. Emissions targets and the real business cycle: intensity targets versus caps or taxes. J. Environ. Econ. Manag 62:352–66 [Google Scholar]
  38. Fischer S. 1980. Dynamic inconsistency, cooperation and the benevolent dissembling government. J. Econ. Dyn. Control 2:93–107 [Google Scholar]
  39. Gerlagh R, Kverndokk S, Rosendahl KE. 2009. Optimal timing of climate change policy: interaction between carbon taxes and innovation externalities. Environ. Resour. Econ 43:369–90 [Google Scholar]
  40. Gerlagh R, Liski M. 2014. Carbon prices for the next hundred years. Tech. Rep./Work. Pap., CESifo
  41. Golosov M, Hassler J, Krusell P, Tsyvinski A. 2014. Optimal taxes on fossil fuel in general equilibrium. Econometrica 82:41–88 [Google Scholar]
  42. Goulder LH. 1995. Environmental taxation and the double dividend: a reader’s guide. Int. Tax Public Finance 2:157–83 [Google Scholar]
  43. Goulder LH, Mathai K. 2000. Optimal CO2 abatement in the presence of induced technological change. J. Environ. Econ. Manag 39:1–38 [Google Scholar]
  44. Graversen RG, Mauritsen T, Tjernström M, Källén E, Svensson G. 2008. Vertical structure of recent Arctic warming. Nature 451:53–56 [Google Scholar]
  45. Hart R. 2004. The timing of taxes on CO2 emissions when technological change is endogenous. J. Environ. Econ. Manag 55:194–212 [Google Scholar]
  46. Hassler J, Krusell P. 2012. Economics and climate change: integrated assessment in a multi-region world. J. Eur. Econ. Assoc 10:974–1000 [Google Scholar]
  47. Hassler J, Krusell P, Olovsson C. 2012. Energy-saving technical change. NBER Tech. Rep.
  48. Heal G, Kriström B. 2002. Uncertainty and climate change. Environ. Resour. Econ 22:3–39 [Google Scholar]
  49. Heal G, Millner A. 2014. Uncertainty and decision making in climate change economics. Rev. Environ. Econ Policy 8:120–37 [Google Scholar]
  50. Heutel G. 2012. How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks. Rev. Econ. Dyn 15:244–64 [Google Scholar]
  51. Hope C. 2006. The marginal impact of CO2 from PAGE2002: an integrated assessment model incorporating the IPCC’s five reasons for concern. Integr. Assess. J 6:566–77 [Google Scholar]
  52. Hope C, Anderson J, Wenman P. 1993. Policy analysis of the greenhouse effect: an application of the PAGE model. Energy Policy 21:327–38 [Google Scholar]
  53. IPCC 2013. Climate Change 2013: The Physical Science Basis. Working Group I Contribution to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  54. Jensen S, Traeger CP. 2014. Optimal climate change mitigation under long-term growth uncertainty: stochastic integrated assessment and analytic findings. Eur. Econ. Rev 69:104–25 [Google Scholar]
  55. Judd KL. 1985. Redistributive taxation in a simple perfect foresight model. J. Public Econ 28:59–83 [Google Scholar]
  56. Karp L. 2011. The environment and trade. Annu. Rev. Resour. Econ 3:397–417 [Google Scholar]
  57. Kelly DL, Kolstad CD. 1999a. Bayesian learning, growth, and pollution. J. Econ. Dyn. Control 23:491–518 [Google Scholar]
  58. Kelly DL, Kolstad CD. 1999b. Integrated assessment models for climate change control. In International Yearbook of Environmental and Resource Economics 1999/2000: A Survey of Current Issues, ed. H Folmer, T Tietenberg, pp. 171–97. Cheltenham, UK: Edward Elgar
  59. Klein P, Krusell P, Rios-Rull JV. 2008. Time-consistent public policy. Rev. Econ. Stud 75:789–808 [Google Scholar]
  60. Kydland FE, Prescott EC. 1982. Time to build and aggregate fluctuations. Econometrica 50:1345–70 [Google Scholar]
  61. Lemoine D, Traeger C. 2014. Watch your step: optimal policy in a tipping climate. Am. Econ. J. Econ. Policy 6:137–66 [Google Scholar]
  62. Lenton TM, Held H, Kriegler E, Hall JW, Lucht W et al. 2008. Tipping elements in the earth’s climate system. PNAS 105:1786–93 [Google Scholar]
  63. Lucas RE. 1976. Econometric policy evaluation: a critique. Carnegie-Rochester Conf. Ser. Public Policy 1:19–46 [Google Scholar]
  64. Manne A, Mendelsohn R, Richels R. 1995. MERGE: a model for evaluating regional and global effects of GHG reduction policies. Energy Policy 23:17–34 [Google Scholar]
  65. Martins J, Sturm P. 2000. Efficiency and distribution in computable models of carbon emission abatement. See Chichilnisky & Heal 2000, pp. 156–68
  66. McKibbin WJ, Wilcoxen PJ. 2002. The role of economics in climate change policy. J. Econ. Perspect. 16:107–29 [Google Scholar]
  67. MNP 2006. Integrated modelling of global environmental change. An overview of IMAGE 2.4. Rep., MNP
  68. Nævdal E. 2006. Dynamic optimisation in the presence of threshold effects when the location of the threshold is uncertain—with an application to a possible disintegration of the Western Antarctic Ice Sheet. J. Econ. Dyn. Control 30:1131–58 [Google Scholar]
  69. Negishi T. 1960. Welfare economics and the existence of an equilibrium for a competitive economy. Metroeconomica 12:92–97 [Google Scholar]
  70. Nordhaus WD. 1994. Managing the Global Commons: The Economics of the Greenhouse Effect Cambridge, MA:: MIT Press [Google Scholar]
  71. Nordhaus WD. 2007. To tax or not to tax: alternative approaches to slowing global warming. Rev. Environ. Econ. Policy 1:26–44 [Google Scholar]
  72. Nordhaus WD. 2008. A Question of Balance: Weighing the Options on Global Warming Policies New Haven, CT/London: Yale Univ. Press [Google Scholar]
  73. Nordhaus WD. 2010. Economic aspects of global warming in a post-Copenhagen environment. PNAS 107:11721–26 [Google Scholar]
  74. Nordhaus WD. 2011. Integrated economic and climate modeling. Discuss. Pap./Tech. Rep. 1,839, Cowles Found.
  75. Nordhaus WD, Boyer J. 2000. Warming the World: Economic Models of Global Warming Cambridge, MA: MIT Press [Google Scholar]
  76. Nordhaus WD, Yang Z. 1996. A regional dynamic general-equilibrium model of alternative climate-change strategies. Am. Econ. Rev 86:741–65 [Google Scholar]
  77. North GR. 1975a. Analytical solution to a simple climate model with diffusive heat. J. Atmos. Sci. 32:1301–7 [Google Scholar]
  78. North GR. 1975b. Theory of energy-balance climate models. J. Atmos. Sci 32:2033–43 [Google Scholar]
  79. Parry IW. 1995. Optimal pollution taxes and endogenous technological progress. Resour. Energy Econ. 17:69–85 [Google Scholar]
  80. Pigou AC. 1920. The Economics of Welfare London: Macmillan [Google Scholar]
  81. Pindyck RS. 2007. Uncertainty in environmental economics. Rev. Environ. Econ. Policy 1:45–65 [Google Scholar]
  82. Pindyck RS. 2013. The climate policy dilemma. Rev. Environ. Econ. Policy 7:219–37 [Google Scholar]
  83. Pizer W. 1999. The optimal choice of climate change policy in the presence of uncertainty. Resour. Energy Econ. 21:3–4255–87 [Google Scholar]
  84. Polasky S, de Zeeuw A, Wagener F. 2011. Optimal management with potential regime shifts. J. Environ. Econ. Manag. 62:229–40 [Google Scholar]
  85. Popp D. 2002. Induced innovation and energy prices. Am. Econ. Rev. 92:160–80 [Google Scholar]
  86. Popp D. 2004. ENTICE: endogenous technological change in the DICE model of global warming. J. Environ. Econ. Manag. 48:742–68 [Google Scholar]
  87. Power SB, Delage F, Colman R, Moise A. 2012. Consensus on twenty-first-century rainfall projections in climate models more widespread than previously thought. J. Clim. 25:3792–809 [Google Scholar]
  88. Ramsey FP. 1927. A contribution to the theory of taxation. Econ. J 37:47–61 [Google Scholar]
  89. Rosendahl KE. 2004. Cost-effective environmental policy: implications of induced technological change. J. Environ. Econ. Manag 48:1099–121 [Google Scholar]
  90. Sandmo A. 1975. Optimal taxation in the presence of externalities. Swed. J. Econ 77:86–98 [Google Scholar]
  91. Sandmo A. 2004. Environmental taxation and revenue for development. In New Sources of Development Finance, ed. AB Atkinson, pp. 33–57. Oxford, UK: Oxford Univ. Press
  92. Sandmo A. 2006. Global public economics: public goods and externalities. Tech. Rep. 18-19, Revues.org
  93. Schmitt A. 2014. Beyond Pigou: climate change mitigation, policy making and distortions. PhD Thesis, Stockholm Univ
  94. Sedláĉek J, Knutti R. 2014. Half of the world’s population experience robust changes in the water cycle for a 2°C warmer world. Environ. Res. Lett. 9:044008 [Google Scholar]
  95. Sellers WD. 1969. A global climatic model based on the energy balance of the Earth’s atmosphere system. J. Appl. Meteorol. 8:392–400 [Google Scholar]
  96. Sheeran KA. 2006. Who should abate carbon emissions? A note. Environ. Resour. Econ. 35:89–98 [Google Scholar]
  97. Shiell L. 2003a. Descriptive, prescriptive and second-best approaches to the control of global greenhouse gas emissions. J. Public Econ. 87:1431–52 [Google Scholar]
  98. Shiell L. 2003b. Equity and efficiency in international markets for pollution permits. J. Environ. Econ. Manag. 46:38–51 [Google Scholar]
  99. Sinclair P. 1992. High does nothing and rising is worse: Carbon taxes should keep declining to cut harmful emissions. Manch. Sch. 60:41–52 [Google Scholar]
  100. Sinn HW. 2008. Public policies against global warming: a supply side approach. Int. Tax Public Finance 15:360–94 [Google Scholar]
  101. Smith JB, Schneider SH, Oppenheimer M, Yohe GW, Hare W et al. 2009. Assessing dangerous climate change through an update of the Intergovernmental Panel on Climate Change (IPCC) “reasons for concern.”. PNAS 106:4133–37 [Google Scholar]
  102. Stanton EA. 2011. Negishi welfare weights in integrated assessment models: the mathematics of global inequality. Clim. Change 107:417–32 [Google Scholar]
  103. Stanton EA, Ackerman F, Kartha S. 2009. Inside the integrated assessment models: four issues in climate economics. Clim. Dev. 1:166–84 [Google Scholar]
  104. Sterner T, Kyriakopoulou E. 2012. (The economics of) discounting: unbalanced growth, uncertainty, and spatial considerations. Annu. Rev. Resour. Econ 4:285–301 [Google Scholar]
  105. Tol RSJ. 1997. On the optimal control of carbon dioxide emissions: an application of FUND. Environ. Model. Assess 2:151–63 [Google Scholar]
  106. Tol RSJ. 2008. The social cost of carbon: trends, outliers and catastrophes. Economics 2:2008–25 [Google Scholar]
  107. Tol RSJ. 2009. An analysis of mitigation as a response to climate change. Pap., Copenhagen Consens. Clim. http://www.copenhagenconsensus.com/sites/default/files/ap_mitigation_tol_v_3.0.pdf
  108. Tol RSJ. 2011. The social cost of carbon. Annu. Rev. Resour. Econ 3:419–43 [Google Scholar]
  109. Traeger CP. 2009. Recent developments in the intertemporal modeling of uncertainty. Annu. Rev. Resour. Econ. 1:261–86 [Google Scholar]
  110. Tsur Y, Zemel A. 1998. Pollution control in an uncertain environment. J. Econ. Dyn. Control 22:967–75 [Google Scholar]
  111. van der Ploeg F. 2013. Cumulative carbon emissions and the green paradox. Annu. Rev. Resour. Econ 5:281–300 [Google Scholar]
  112. van der Ploeg F, de Zeeuw A. 2014. Climate tipping and economic growth: precautionary saving and the social cost of carbon. Res. Pap. 118, Dep. Econ., OxCarre, Univ. Oxford
  113. von Below D, Persson T. 2008. Uncertainty, climate change and the global economy. NBER Work. Pap. 14426
  114. Weitzman ML. 1974. Prices vs. quantities. Rev. Econ. Stud. 41:477–91 [Google Scholar]
  115. Weitzman ML. 2011. Fat-tailed uncertainty in the economics of catastrophic climate change. Rev. Environ. Econ. Policy 5:275–92 [Google Scholar]
  116. Williams RC. 2002. Environmental tax interactions when pollution affects health or productivity. J. Environ. Econ. Manag. 44:261–70 [Google Scholar]
/content/journals/10.1146/annurev-resource-100814-124951
Loading
  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error