Conference Agenda

Public acceptability remains a major barrier to implementing effective carbon taxes. Resistance often stems from misconceptions about the costs and benefits of the policy. Two potential tools to improve acceptability are revenue recycling, which links the tax to tangible benefits, and cost transparency, which reduces uncertainty by making the financial burden clearer. This paper examines the effects of mixed revenue use and cost transparency on carbon tax acceptability, drawing on representative survey experiments in Germany (n = 1327) and Italy (n = 1293). When possible, respondents allocated substantive shares of revenues for multiple purposes rather than dedicating them to one single scheme. Aggregate allocation patterns differed substantially between single-use and mixed-use settings, with less funding directed to general budgets and climate projects under mixed-use. However, contrary to expectations, mixed-use did not significantly increase carbon tax acceptability. By contrast, cost transparency significantly increased the maximum acceptable carbon tax. The anticipated mechanism, that transparency would particularly benefit those who overestimated costs, was not supported. Instead, exploratory analysis suggests that transparency affects acceptability through two mechanisms, (1) by confirming or disconfirming prior cost perceptions, or (2) by informing people that costs are lower than expected.

Fossil fuels represent a significant portion of the wealth of resource-rich nations. However, their valuation as non-renewable natural capital in inclusive or comprehensive wealth accounting to indicate sustainability does not embody the external costs of climate change damages. This study consistently incorporates the social cost of carbon (SCC) into the value of depletion of non-renewable natural capital for wealth accounting of resource-rich nations. We show generalised shadow prices of depletion under different resource allocation mechanisms (RAMs) in the presence of the SCC under declining extraction and the unburnable natural capital stock constraint. In our application to oil, depletion is valued differently across RAMs of user-cost shadow pricing and weighted average shadow pricing, depending on how rent, SCC, and decarbonisation develop in the future. The sustainability implication of the choice of RAM is even more significant in the presence of SCC.

Delays in climate policy implementation can permanently raise the cost of meeting climate objectives by encouraging fossil fuel investments that lock in future emissions. This paper examines the implications of a delayed implementation of a carbon tax on emissions reductions in the oil producing sector? using detailed field-level data on global oil production. I show that delaying a carbon tax consistent with the 1.5°C objective from 2016 to 2030 results in a 32\% overshoot of the oil carbon budget. The overshoot is driven by both excess production during the delay and long-term infrastructure lock-in from new investments. To quantify the cost of carbon lock-in, I identify committed emissions from investments that would not occur in the presence of the tax but become irreversible once production facilities are built. Responsible for 40\% of the overshoot at the extensive margin, lock-in effects are highly concentrated in a small number of capital-intensive deepwater offshore projects and generate emissions largely resilient to higher carbon prices. I show that failing to account for these investments dynamics leads to underestimating the optimal carbon tax required after the delay, and refers to the resulting wedge as the carbon tax lock-in premium. The findings highlight the effectiveness of targeted supply-side policies in mitigating the long-term costs of delayed climate action.

We explore the theoretical effects of carbon sequestration credits embodied in U.S. federal tax code §45Q to show the extent to which they induce firms to choose less than optimal investments. We model a single, representative firm producing a single output with two inputs of differing carbon intensity. Firms also have the ability to sequester a portion of their total carbon emissions, but this carries a large fixed cost. We show that firms that are induced to sequester under a carbon tax would also be induced to sequester under an equal-sized sequestration subsidy. In practice, we corroborate our theoretical results through numerical simulations and show that the carbon tax inducing sequestration is much, much larger than the sequestration credit required to induce sequestration. This reflects the fact that the firm is earning revenue under the credit that can be used to offset high fixed costs. We also show that under a carbon tax, firms will utilize far less costly abatement options in response to the policy long before adopting sequestration. We show this likely points to substantial inefficiencies associated with sequestration subsidies even relative to a carbon reduction rebate that would act like a carbon tax supplemented with a lump-sum transfer. Lastly we compare the effects of these policies to alternatives such as a net emissions standard.