Time-consistent carbon pricing: The role of carbon contracts for differences

Carbon pricing decisions by governments are prone to time-inconsistency, which causes the private sector to underinvest in emission-reducing technologies. We show that incentives for decarbonization can be improved if complementing carbon pricing with carbon contracts for differences, where the government commits to pay a fixed carbon price level to the investors. We derive conditions under which the government is willing to "tie its hands" with the contracts.

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Year of publication:	2020
Authors:	Chiappinelli, Olga ; Neuhoff, Karsten
Publisher:	Berlin : Deutsches Institut für Wirtschaftsforschung (DIW)
Subject:	Carbon pricing \| Time-inconsistency \| Green technology \| Climate policy \| Carbon contracts

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Series:	DIW Discussion Papers ; 1859
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	1694350541 [GVK] hdl:10419/218980 [Handle]
Classification:	C73 - Stochastic and Dynamic Games ; L51 - Economics of Regulation ; O31 - Innovation and Invention: Processes and Incentives ; Q58 - Government Policy
Source:	EconStor

Persistent link: https://www.econbiz.de/10012226728