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Incomplete International Climate Agreements: Optimal Carbon Taxes, Market Failures and Welfare Effects

Abstract:
This paper provides an empirical study of optimal carbon taxes and welfare effects under incomplete international climate agreements when there are market failures in the cooperating countries. The objective of the group of countries taking part in the international climate agreement is to design carbon taxes that maximize their aggregate net income, subject to a constraint on global CO2 emissions. We use a numerical energy model to study scenarios that differ with respect to types of CO2 taxes and countries taking part in the climate agreement. We also discuss the impact on regional net income following from different international climate agreements.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Incomplete climate agreements, Optimal carbon taxes, Welfare effects, CO2 emissions

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-7


Published in Volume15, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.