The social cost of carbon and inequality: When local redistribution shapes global carbon prices

Ulrike Kornek, David Klenert, Ottmar Edenhofer, Marc Fleurbaey

Research output: Contribution to journalArticlepeer-review

Abstract

The social cost of carbon is a central metric for optimal carbon prices. Previous literature shows that inequality significantly influences the social cost of carbon, but mostly omits heterogeneity below the national level. We present an optimal taxation model of the social cost of carbon that accounts for inequality between and within countries. We find that climate and distributional policy can generally not be separated. If only one country does not compensate low-income households for disproportionate damages, the social cost of carbon tends to increase globally. Optimal carbon prices remain roughly unchanged if national redistribution leaves inequality between households unaffected by climate change and if the utility of households is approximately logarithmic in consumption.

Original languageEnglish (US)
Article number102450
JournalJournal of Environmental Economics and Management
Volume107
DOIs
StatePublished - May 2021
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

Keywords

  • Carbon tax
  • Climate change
  • Inequality
  • Optimal taxation
  • Social cost of carbon

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