Will the Centralisation of Carbon Pricing Revenue in the EU Lead to Laxer Climate Policy?

23 Pages Posted: 5 Apr 2021

See all articles by Clemens Fuest

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Volker Meier

CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Ifo Institute for Economic Research at the University of Munich

Date Written: 2021

Abstract

We analyse the economic impact of using carbon pricing revenue to fund the EU budget. Such a reform would redistribute from countries with above average carbon intensive production to less carbon intensive countries. Once the reform is implemented, the low carbon countries will prefer a lower carbon price, i.e. laxer climate policy at the EU level, than before the reform. For high carbon countries the opposite is true. As a result, EU climate policy becomes less ambitious and less disputed. We also analyse an extension of the model in which consumption generates carbon emissions that are not covered by the emission certificate regulation, and we consider the impact of changes in EU climate policy on the rest of the world as well as global emissions.

JEL Classification: H230, H270, H870, Q580

Suggested Citation

Fuest, Clemens and Meier, Volker, Will the Centralisation of Carbon Pricing Revenue in the EU Lead to Laxer Climate Policy? (2021). CESifo Working Paper No. 8979, Available at SSRN: https://ssrn.com/abstract=3819100

Clemens Fuest (Contact Author)

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

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Ludwig-Maximilians-University, Munich ( email )

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Center for Economic Studies (CES) ( email )

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Volker Meier

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Ifo Institute for Economic Research at the University of Munich ( email )

Poschingerstr. 5
Munich
Germany

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