Informationally Efficient Climate Policy: Designing Markets to Measure and Price Externalities / Derek Lemoine.

Format:

Book

Author/Creator:

Lemoine, Derek.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30535.

NBER working paper series no. w30535

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

I study how policymakers can access and act on the information about climate change damages that is dispersed throughout the economy. I analyze a new dynamic deposit-refund instrument (called "carbon shares"). I show that there exists a limit-case rational expectations equilibrium in which it: i) efficiently prices emissions conditional on information, ii) efficiently incentivizes removal of past emissions conditional on information, and iii) efficiently aggregates dispersed information about the social cost of emissions. Conventional emission taxes generally succeed at only the first of these objectives. Rather than projecting damages in all future periods and all possible states of the world in order to calculate the optimal tax, the regulator here estimates damages as they are realized and empowers markets to perform price discovery about future damages.

Notes:

Print version record

October 2022.