Climate policy

Question 1

What is carbon pricing?

Answer 1

Carbon pricing (e.g., carbon taxes or cap-and-trade systems) is designed to reduce GHG emissions by putting a monetary cost on carbon emissions.

Question 2

Why is carbon pricing considered effective?

Answer 2

Carbon pricing is a highly effective tool for achieving the policy objective of measurable environmental outcomes. Empirical evidence shows that carbon pricing has achieved measurable emission reductions (e.g., at least 6.83% reduction in many cases).

Question 3

What is the economic efficiency of carbon pricing?

Answer 3

Policies like carbon pricing impose uniform MAC, enhancing societal net benefits by internalizing marginal external costs. It is often chosen over regulatory standards.

Question 4

Why are the quantity instruments like marketable permits considered when there is uncertainty?

Answer 4

There is uncertainty about MAC and social costs of carbon, making it difficult to predict exact costs and benefits of emission reductions. Quantity instruments are better at controlling emission levels and thus often preferable in the face of steep emission damage functions.

Question 5

What incentives does carbon pricing provide? (dynamic efficiency)

Answer 5

Carbon pricing provides incentives for abatement technology innovation. Over time, carbon pricing creates dynamic efficiency as firms adopt cost-saving and sustainable practices.

Question 6

What is carbon leakage?

Answer 6

Carbon leakage arises when stricter climate policies in one country lead to increased emissions in others.

Question 7

How can carbon leakage obstacle be addressed by climate policy?

Answer 7

Countries can form stable coalitions without requiring full global agreement, provided the incentives are structured appropriately. Mechanisms like Border Carbon Adjustments (BCAs) help level the playing field by taxing imports based on their carbon content, mitigating leakage risks while supporting broader climate objectives.

Question 8

What are Border Carbon Adjustments (BCAs)?

Answer 8

BCAs are levies on imports in proportion to their carbon content, helping to mitigate leakage risks.

Question 9

What are Climate Coalitions (Climate Clubs)?

Answer 9

Countries with similar climate ambitions form a coalition and align their carbon pricing policies.

Question 10

What are the objectives in the climate policy?

Answer 10

Effectiveness
Economic efficiency
Sustainability and dynamic efficiency

Question 11

What are the implementation obstacles in climate policy?

Answer 11

Uncertainty
International competition and interactions