Environment & Climate Change

The author explores the role of the Montreal Protocol's assessment panel and draws lessons for the UNFCCC.

The authors explore, in particular, the implications for CO2 removal and solar geoengineering of the Paris Agreement's long-term temperature goals, provision for "removals by sinks," and market-based mitigation mechanisms.

The emerging pledge and review approach to international climate policy provides countries with substantial discretion in how they craft their intended emission mitigation contributions. The resulting heterogeneity in mitigation pledges places significant demands for a well-functioning transparency and review mechanism. In particular, the specific forms of intended contributions necessitate economic analysis in order to estimate the aggregate effects of these contributions as well as to permit "apples-to-apples" comparisons of mitigation efforts. This paper discusses the tools that can inform such analyses as well as the institutional needs of climate transparency.

In the absence of an effective global agreement to reduce carbon emissions, some industrialized countries have taken unilateral action to reduce emissions. However, unilateral carbon policy can lead to leakage of carbon emissions and precludes abating emissions where such abatement would be least expensive (possibly in other countries). Border carbon adjustment (BCA) is one policy option to mitigate these two disadvantages of unilateral action, but the effectiveness of these measures remains unclear. Comparing the results of simulated carbon policy and BCA in multiple computable general equilibrium (CGE) models of the global economy offers several estimates of the effectiveness of BCA.

Recent research in economics shows how not to design climate treaties—and suggests how to get it right.

Emitting carbon dioxide (CO2 )—and other greenhouse gases—imposes a cost on society because it contributes to damages from climate change. This "social cost" is also known as an "externality," in that the emitter does not bear this cost. The "Social Cost of Carbon" (SCC), then, is the "marginal monetized externality value" of damages from CO2 emissions, where "marginal" refers to the next incremental unit of emissions. As damages from climate change become more evident, it becomes increasingly useful in formulating public policy (especially in connection with attendant benefit-cost analysis of that policy) to employ an SCC—that is, a numerical, non-zero value for climate damages. This paper examines the process in the U.S. government of specifying an SCC.

It is difficult for finance ministers to raise revenue by taxing a firm's mobile capital assets because the costs of relocating that capital in response to tax pressure have been reduced by globalization. Countries compete for this capital by reducing their capital tax rates. Governments are still pressured to provide welfare-enhancing public infrastructure investments despite resulting reductions in revenue.

Carbon taxes are a way to raise revenue without chasing firms abroad because carbon assets are not mobile or evenly distributed geographically. A tax on carbon imports cannot be avoided by relocation as easily as a tax on mobile capital. As a result, finance ministers who may not otherwise care about the environment may favor a carbon tax as a way to finance welfare-improving public investment.