Norwegian climate policy reforms in the presence of an international quota market |
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Affiliation: | 1. Statistics Norway, Research Department, Norway;2. Norwegian University of Life Sciences, UMB, Norway |
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Abstract: | This study shows that the second-best optimal difference between tax rates on goods that generate greenhouse gas emissions and non-polluting goods is equal to the quota price plus a Ramsey tax on the quota price when emission quotas are traded between governments and the price elasticity of these goods is identical. This tax difference exceeds the second-best optimal difference between tax rates on goods that generate a negative externality equivalent to the quota price and non-polluting goods. Model simulations show that a unilateral increase in emission tax to above the international quota price generates a welfare gain for Norway. Model simulations also show that an international tax/quota price increase generates a welfare gain (loss) for Norway if Norwegian imports of oil become substantial (marginal) in the long run. |
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