CarPri- Carbon Pricing after Paris

Start of Project 12/2018
End of Project 03/2022

The goals set in the Paris Agreement (2°C target and NDCs) raise the central question of how nations can achieve these targets both effectively and efficiently. Under the umbrella of the internationally recognized Energy Modeling Forum (EMF), CarPri investigates the role of carbon pricing and the economic effects of various climate policy scenarios, deploying around 20 international institutes´ climate-economy models. In addition to an overview paper on the core scenarios of the project, each institute prepares an additional paper with a focus of their own choosing. The overarching issues for these individual contributions are on the one hand distributional effects for different income groups, and on the other hand effects of various international collaborations. The research results will be published in a special issue at Energy Economics and will inform political decision-makers and societal stakeholders about the economic and emissions-related consequences of various regulatory instruments.

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Project results

The project results confirmed and specified the efficiency potentials of international cooperation in CO2 pricing to achieve the Paris climate goals. High efficiency gains are possible even with small coalitions. International emissions trading and the lump-sum reimbursement of revenues from CO2 pricing to households have the potential to enable a climate policy that is in line with the 2°C target. Global emissions trading will achieve the 2°C target at roughly the same cost that individual countries have already implicitly agreed to with their NDCs. Pricing of CO2 emissions can be progressive if the additional revenue is passed on to households. These results have been communicated to stakeholders in various formats and can help to actually achieve and scale up the NDCs.

Illustration of project results

The Figure shows the global welfare impacts in a scenario without international emission trading (labelled ref; lighter shaded bars) and in a scenario with global emission tra­ding (labelled global; darker shaded bars) for the three different ambition levels on emission re­duction NDC (current unconditional pled­ges), NDC+ (current conditional pledges), and NDC-2C (reductions in line with the 2°C target). On the x-axis, individual models are displayed. On the y-axis the global welfare changes (in Hicksian equivalent variation (HEV)) relative to a Baseline scenario without am­bitious emission reduction targets are displayed. On average, the global welfare losses associated with reaching NDC-2C under global emission trading are very similar to global welfare losses associated with reaching the current NDCs (NDC) without international emission trading.

Main Findings

  • Emission reductions that are in line with the temperature targets of the Paris Climate Agreement are achievable with only minor losses in real income if CO2 pricing is cost-efficient. Harmonised CO2 pricing via inter­national emissions trading plays a central role in this.
  • Poorer households in particular are strongly affected by a CO2 price. A refund of revenues via flat-rate transfers can prevent this regressive effect.