Carbon Pricing and Inequality: A Normative Perspective

The Case against Carbon Prices

Curbing the car: the mitigation potential of a higher carbon price in the New Zealand transport sector

Purpose The purpose of this paper is to investigate the impact of carbon price and competition intensity and the optimal decisions in a two-echelon low-carbon supply chain, consisting of a manufacturer, a retailer and a third party, under carbon cap and trade (CCT) and in two different competitive behaviors in the sales and recycling markets. First, two models are built and the optimal solutions are obtained. Second, a comparative analysis of these optimal solutions and the effects of some key parameters on optimal decisions are examined. Design/methodology/approach The authors adopt the manufacturer-led Stackelberg game theoretic framework, where the manufacturer decides the wholesale price, followed by the retailer and third party to determine the retail and recycling quantities. Moreover, the retailer and third party engage in Stackelberg or Cournot game. Findings Firstly, the CCT benefits the third party more. A rise in carbon price negatively affects manufacturer production and retailer recycling but boosts the third party’s recycling. Secondly, the Stackelberg model allows the third party to get more recycling volume and profit, while the Cournot model is better for the manufacturer and retailer. Thirdly, when faced with the increasing competition intensity in the recycling and sales market, the third party and retailer adopt various strategies in response to different competition intensities. Finally, social welfare in the Cournot model is higher in most of the cases, but when the third party and retailer’s recycling competition intensity decreases below a certain threshold, the social welfare in the Stackelberg model exceeds that in the Cournot model. Research limitations/implications Firstly, in both models, as the carbon price increases, the amounts of new products, the retailer’s recycling volume and profit decrease. The manufacturer’s profit rebounds when the carbon price surpasses a threshold. Secondly, when the third party faces a rise in the retailer’s recycling market competition, its strategy differs from that of the retailer in the sales market. Finally, the retailer and third party tend to set a higher recycling price than in the Cournot model. The retailer and manufacturer can obtain higher profits in the Cournot model, while the third party is more profitable in the Stackelberg model. Practical implications This paper can also further relax the assumptions, so our paper can expand the research from several aspects. First, this paper only considers the single-period model; thus, the multi-periods can be considered in the supply chain model. Second, only the consequences of the CCT mechanism are the subject of this paper. However, in real life, there are still carbon emissions reduction (CER) regulatory mechanisms such as carbon tax, so comparing and analyzing the effects of various CER mechanisms is an interesting task. Social implications The government should provide more support and opportunities for the third party in the early stage of development under the CCT mechanism. Meanwhile, the government ought to establish acceptable carbon quotas and strengthen the supervision of the carbon market. The manufacturer should monitor carbon price changes and adjust production and CER strategies and increase CER technology investment. The retailer should gather information and aim to make concurrent decisions with the third party. The third party should grasp decision-making initiative and be a competitive leader. The retailer and third party should closely watch competition intensity and flexibly adjust recycling and pricing strategies in both markets. Originality/value This paper concentrates on the scenario where retailer and third party compete in both the sales and recycling markets under CCT and focuses on the differences in competition intensity between retailer and third party. Furthermore, this paper considers different competitive behaviors and analyzes the optimal decisions of all parties when competing simultaneously in the sales and recycling markets, which provide more targeted guidance for practical operation.

The International Energy Agency (IEA) (2020) states that “Global energy-related CO2 emissions flattened in 2019 at around 33 gigatons, following 2 years of increases. This resulted mainly from a sharp decline in CO2 emissions from the power sector in advanced economies, thanks to the expanding role of renewable sources (mainly wind and solar photovoltaics), fuel switching from coal to natural gas and higher nuclear power output.” The decarbonization mechanism agreed to at 2015 United Nations Climate Change Conference (COP 21) held in Paris urges all members to commit to Intended Nationally Determined Contributions, but it is natural for developing economies to be reluctant to make ambitious commitments because they depend more on coal and oil as they are cheaper energy sources than renewables or gas for economic growth. Arimura and Sugino (2021) describe how Asian economies have tried to reduce their CO2 emissions. Arimura and Sugino (2021) do correctly pick up air pollution issues among the many environmental issues as the primary environmental concern for Asian countries. Air quality is indeed very important for the welfare of the domestic population, but global warming seems more important for someone else in the world. Here, I add an “energy security” aspect to the discussion. Reducing a country's import dependency on oil and gas by using more indigenous renewables and enforcing energy efficiency will increase its national energy security. Security is directly linked to the welfare of the population. The International Energy Agency (IEA) was established in 1974 at the time of the first oil crisis to secure the oil supply by the strategic stockpiling of petroleum. But IEA (2019, p. 255) states that “Electricity is at the heart of modern economies and it is providing a rising share of energy services.” The steady and affordable supply of clean electricity with less air pollution is the key energy security and environment policy for the future. Security cannot be achieved by one country alone; a European style of collective undertaking is essential in Asia, in areas such as power grid connectivity or gas pipeline connections for scaling up the use of renewables as well as natural gas. Arimura and Sugino (2021) also touch upon market policy instruments for CO2 reductions. They explain very well where Asian countries stand in relation to carbon pricing by emissions trading schemes (ETS) or carbon tax measures. Carbon pricing is theoretically the best way to reduce emissions. It was first introduced by the EU and followed by some Asian countries like Chinese provinces. Association of Southeast Asian Nations countries as a group may consider ETS. Arimura and Sugino (2021) discuss a variety of cases in different countries, but unfortunately these countries introduced carbon prices or taxes that are far too low or reduction targets that are not ambitious enough to make an effective carbon rate. Arimura and Sugino (2021) say that it should be more than US$30 or 30 Euros. IEA (2019, p. 758) assumes that effective rate of carbon for the Sustainable Development Scenario (2° containment) should be as high as US$100 in advanced countries and about US$20 in developing countries in 2030. With such low rates, it would be very difficult to evaluate quantitatively the impact of carbon pricing on fuel switching from coal to gas, efficiency improvement or the deployment of renewables. ETS is theoretically the best way to achieve a certain level of emissions reduction though it is highly political to make a commitment and not much has been achieved during decades of futile discussion. International harmonization of an ETS or carbon tax seems to me to be a “scientific fiction.” Rather than discussing the theoretical advantages of carbon pricing forever, applying internal carbon pricing mechanisms for corporate investment decisions may be more realistic and constructive. It is not a top-down approach, but rather a bottom-up approach. Many European corporations already have internal carbon pricing, while this is much less the case in either Japan or Asia. In 2018, the Japanese government took very seriously the recommendations of the Task Force for Climate Financial Disclosure (TCFD). The Japanese Ministry of Economy, Trade and Industry organized a working group for the TCFD and developed guidelines for Japanese corporations. More than 200 Japanese corporations have signed up with TCFD so far and will disclose their climate risks in due course. They are requested to make internal carbon price assumptions to evaluate their risks when the 2° scenario comes true. Financial investors will divest from corporations with high risks of depending on coal. There are more than 229 global corporations (including 30 Japanese corporations) claiming themselves to be RE100 (Renewable Energy 100%). These corporations pledge to use only carbon free energy sources to produce their products by 2030. Some companies like Apple demand their supply chain companies to do the same regardless of their home country. Those corporations who wish to stay in Apple's supply chain will not buy electricity generated by using coal. This movement together with the financial sector's selection of TCFD standards will force the electricity supply structure to change. As Arimura and Sugino (2021) conclude, fuel switching from coal to natural gas and further to renewables is happening in Asia and will be strengthened much more and occur much faster than anybody thinks. TCFD has become a mainstream issue in Japanese business circles within the space of a year. I call this a “Demand-side Driven Transformation.” This transformation will be the force to change the Asian energy sector.

Carbon Pricing: Design, Experiences and Issues, edited by LarryKreiser, MikaelAndersen, BirgitteOlsen, StefanSpeck, JanetMilne and HopeAshiabor. Published by Edward Elgar Publishing, Cheltenham, UK, 2015, 256 pages. ISBN: 9781785360220, ₤75.

Global warming's major cause is the emission of greenhouse-effect gases (GHG), especially carbon dioxide (CO2) whose main source is the combustion of fossil fuels. Fossil fuels serve as the primary energy source in many industries, including shipping, which is the focus of this study. One of the measures proposed to tackle GHG emissions is the development of green shipping corridors - carbon-free shipping routes that require the transition to alternative fuels, which are gaining competitiveness. One of the reasons for that is carbon pricing, which taxes CO2 emissions. However, the lack of consensus on the most cost-advantageous alternative fuel in the long run results in the delay of the implementation of green shipping corridors.To make it more accessible for stakeholders to conduct an economic analysis of the various options, a framework to determine and minimize the costs of transitioning from fossil fuels to any alternative fuel is proposed, over the period of one voyage, considering the lost opportunity cost, the deployment cost of bunkering vessels at the necessary call ports, the cost of converting the vessel, the car-bon emissions tax cost, and the fuel cost. This will allow stakeholders to choose the most economical alternative fuel, accelerating the development of green shipping corridor initiatives. To validate the effectiveness of the framework, it was applied in a case study involving a shipowner seeking to transition from heavy fuel oil (HFO) to Ammonia, Hydrogen, Liquefied Natural Gas (LNG), or Methanol. This study faced limitations due to the unknown costs of installing bunkering vessels for Ammonia and Hydrogen. However, it evaluates the cost-effectiveness of alternative fuels, providing insights into their short-term economic viability. The results showed that Hydrogen is the most cost-advantageous fuel until a deployment cost per bunkering vessel of 1,990,285$ for a sailing speed of 22 knots and 2,190,171$ for a sailing speed of 18 knots is reached, after which LNG becomes the most economical option regardless of variations in the carbon tax. Moreover, a sensitivity analysis was conducted to determine the effects of variations in parameters, such as carbon tax, fuel prices and vessel conversion costs in the total cost of each fuel option. Results highlighted that even though HFO remains the most economical fuel option, even when considering a high increase in carbon tax, the cost gap between HFO and alternative fuels narrows significantly with the increase in carbon tax. Furthermore, the sailing speed impacts the fuels’ competitiveness, as the cost difference between HFO and alternative fuels decreases at higher speeds.

The economic prescription for mitigating climate change is clear: price carbon dioxide (CO2) and other greenhouse gas emissions to internalize climate damages. In practice, a variety of political economy constraints have prevented the introduction of a carbon price equal to the full social cost of emissions. This chapter develops insights about the design of climate policy in the face of binding political constraints. Using a stylized model of the energy sector, the authors identify welfare-maximizing combinations of a CO2 price, subsidy for clean energy production, and lump-sum transfers to energy consumers or producers under a set of constraints: limits on the CO2 price, on increases in energy prices, and on energy consumer and producer surplus loss. The authors find that strategically using subsidies or transfers to relieve political constraints can significantly improve the efficiency of carbon pricing policies, while strengthening momentum for a low-carbon transition over time.

The economic prescription for climate change is clear: price carbon dioxide (CO2) and other greenhouse gas emissions to internalize climate damages. In practice, a variety of political economy constraints prevent the introduction of a carbon price equal to the full social cost of emissions. This paper develops insights about the design of climate policy in the face of binding political constraints, formulated here as limits on the CO2 price itself, on increases in energy prices, and on energy consumer and producer surplus loss. We employ a stylized model of the energy sector to develop intuition about the welfare-maximizing combination of CO2 price, subsidy for clean energy production, and lump-sum transfers to energy consumers or producers under each constraint. We find that the strategic use of subsidies or transfers can compensate for or relieve political constraints and significantly improve the efficiency and environmental efficacy of carbon pricing policies..

An increase in policy ambition is needed to close the gaps related to climate change mitigation and those required to meet the targets of Paris Agreement. This article examines the contemporary situation of carbon pricing and suggests how carbon costs would help countries adopt comprehensive climate policies. This paper explores the carbon pricing imitative across different regions and the associated issues and proposes how to format holistic, ambitious approaches for effective implementation of carbon pricing. The carbon taxes and emission trading programs are the primary tools for implementation costs. Carbon taxes, fuel taxes, subsidies for fossil energy, and emission trading systems (ETSs) all contribute to these costs. Different countries have adopted different approaches to adopt and mitigate the adverse effect of carbon emissions, but coordinated and integrated efforts are needed. This paper emphasizes the effective carbon pricing and integrating role of finance departments in climate policy; new synergies can be developed to boost government agencies' ability to implement climate policy. Governments may increase their involvement in carbon pricing beyond direct carbon pricing if they implement efficient carbon pricing. Governments, international organizations, and civil society can all play a role in pushing for effective carbon prices to encourage more ambitious targets. Furthermore, the article stresses the need for open communication and a proper understanding of carbon pricing potential to implement climate policy.

Climate change is mainly caused by anthropogenic emissions and can result in loss of biodiversity, population displacement, increased inequality and extreme weather events. To minimize the manifestation of these consequences, changes need to be drastic in the coming decade aiming for a carbon-neutral energy system by mid-century. This research focuses on hydrogen and how it can contribute to achieving this (close to) zero-emissions system. Hydrogen is currently already used in the industrial sector, but has potential to be safely used for transport, power and buildings. It can also be used to produce synthetic fuels that would enable seamless practices for the end consumers while ensuring a low-carbon production upstream. This research looks at all the energy society consumes assessing the optimal technology mix to achieve the low-carbon future and determines where is hydrogen needed, how much does it cost, what technologies are needed and how uncertainties in technological development translate into systemic changes. Hydrogen is the most attractive for heavy-duty long-haul transport applications, industrial use (steel) and production of synthetic oil for aviation and chemical industry. Hydrogen could also be used in cars as complement of electricity or long-term energy storage. Hydrogen will enable to achieve a low-carbon system while contributing to minimum increase in energy prices or the total cost that society needs to pay (through for example carbon tax). Currently hydrogen production and use remain costly and needs public support such as in the form of financing to achieve the scale needed to achieve these low costs.

Public acceptance of carbon taxes in Australia

Carbon pricing is about the explicit pricing of greenhouse gas (GHG) emissions, of which carbon dioxide is the most important. GHG emissions, which are normally measured in tonnes of carbon dioxide equivalent units, are responsible for global warming and hence the greatest environmental externality of our age. Carbon pricing is a mechanism for making society account for the external damage caused by carbon emissions in economic decision making. There are two main ways of pricing carbon dioxide emissions, either via a carbon tax or via the introduction of an emissions trading scheme whereby those emitting carbon into the atmosphere are required to surrender permits which reflect the quantity of emissions they are responsible for. These emission permits are tradeable and hence command a price and, in some respects, operate in a similar way to a carbon tax. Thus, we will discuss both carbon pricing and emissions trading, as the literature on both is closely related. Emissions trading exists for certain other pollutants (such as sulphur dioxide) and we will discuss some of the literature related to this. However, most of the literature on emissions trading relates to carbon dioxide emissions, as these are by far the most valuable traded emissions globally. The literature on carbon pricing and emissions trading is wide ranging and constantly being updated with new analyses. Much of the literature is written by economists who are seeking to apply market-based approaches to the solution of environmental problems. The article starts by looking at the general context in which carbon pricing and emissions trading sits before discussing introductory texts which relate to the subject and going on to introduce the relevant classic literature in environmental economics. It then proceeds to more applied literature, beginning with discussions of early examples of emissions trading and carbon taxation, before continuing to studies of the impact of carbon pricing and emissions trading and those which explain the nature of the schemes we observe. The article continues with literature which looks at the Europe Union Emissions Trading Scheme (EU ETS) for GHGs and other important carbon pricing schemes. It then moves on to the literature on the prospects for a global carbon price, on interactions with other climate policies, on distributional concerns about the imposition of a price on carbon. Finally, it concludes with an introduction to relevant official publications and sources of data on carbon emissions and carbon prices.

In this article, we propose two-stage planning models for Electricity-Gas Coupled Integrated Energy System (EGC-IES), in which traditional thermal power plants (TTPPs) are considered to be retrofitted into carbon capture power plants (CCPPs), with power to gas (PtG) coupling CCPPs to the gas system. The sizing and siting of Carbon Capture, Utilization, and Storage (CCUS)/PtG facilities and the operation cost of TTPP/CCPP/gas source/PtG are all considered in the proposed model, including penalty on carbon emissions and revenue of CCUS. With changing policy on climate change and carbon emission regulation, the carbon price, carbon tax, and load uncertainties are also analyzed and considered in the proposed planning model. Stochastic planning and robust planning methods are introduced to verify mutually through economic and carbon indices. Various cases and discussions demonstrate the proposed methods' effectiveness in reducing carbon emissions and increasing CCUS's profit from EGC-IES.

Cap-and-trade and carbon taxes are two types of environmental policies that differ in their goals and approaches but both have the potential to reduce greenhouse gas emissions and promote renewable energy. We compare the effectiveness and efficiency of these policies in the context of generation capacity expansion. Game theoretic models are used to integrate the environmental policies in a generation expansion planning framework. The most efficient tax policies and variations are obtained using the inverse equilibrium models. We compare cap-and-trade and carbon taxes with respect to five criteria: carbon price and tax, renewable energy portfolio, total energy generation, generation companies’ and grid owner’s total profit, and government revenue. Numerical experiments show the relative advantages, disadvantages, similarities, differences, and limitations of the policies.

Price and Income Elasticities of Residential Energy Demand in Germany