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How Much Carbon Pricing Is In Countries’ Own Interests? The Critical Role Of Co-Benefits

Author

Listed:
  • IAN PARRY

    (Fiscal Affairs Department, International Monetary Fund, 1900 Pennsylvania Ave NW, Washington, DC, 20431, USA)

  • CHANDARA VEUNG

    (Fiscal Affairs Department, International Monetary Fund, 1900 Pennsylvania Ave NW, Washington, DC, 20431, USA)

  • DIRK HEINE

    (University of Bologna, Department of Economics, Piazza Scaravilli 2, 40126 Bologna, Italy3University of Hamburg, Institute of Law and Economics, Johnsallee 35, 20148 Hamburg, Germany4Erasmus University Rotterdam, Institute of Law and Economics, Burgemeester Oudlaan 50, 3000 DR Rotterdam, The Netherlands)

Abstract
This paper calculates, for the top 20 emitting countries, how much pricing of carbon dioxide (CO2) emissions would be in their own national interests due to domestic co-benefits (leaving aside the global climate benefits). On average, second-best domestic prices are substantial, $57.5 per ton of CO2 (for year 2010), reflecting primarily health co-benefits from reduced air pollution at coal plants and, in some cases, reductions in automobile externalities net of fuel taxes/subsidies. Pricing co-benefits reduces CO2 emissions from the top 20 emitters by 13.5%. However, co-benefits vary dramatically across countries (e.g., with population exposure to pollution) and differentiated pricing of CO2 emissions therefore yields higher net benefits (by 23%) than uniform pricing. Importantly, the efficiency case for pricing carbon’s co-benefits hinges critically on weak prospects (for the foreseeable future) for comprehensive internalization of other externalities through other (more efficient) pricing instruments.

Suggested Citation

  • Ian Parry & Chandara Veung & Dirk Heine, 2015. "How Much Carbon Pricing Is In Countries’ Own Interests? The Critical Role Of Co-Benefits," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-26, November.
    • Handle: RePEc:wsi:ccexxx:v:06:y:2015:i:04:n:s2010007815500190
    DOI: 10.1142/S2010007815500190
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    1. Ian W.H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 2002. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 25, pages 471-503, Edward Elgar Publishing.
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    More about this item

    Keywords

    Carbon pricing; co-benefits; air pollution; fuel taxes; top 20 emitters;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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