An Alternative Assessment of Global Climate Policies

This paper analyzes alternative pricing schemes for funding investment in climate policies. This paper proposes a new policy scenario, explicitly disentangling the issue of burden sharing of financing new investments from the issue of taxation energy consumption and therefor emissions. We compare traditional allocation schemes with an optimal Ramsey pricing by applying demand elasticity values, derived from empirical estimations of household behavior for the 106 leading countries in the world, representing around 90% of total world energy consumption and carbon emissions in 2014. We calculate country-specific alternative taxation options: uniform, equitable and Ramsey pricing schemes, applied to households, assessing the related welfare effects. Our results show that the optimal pricing scheme, for a given investment need, can improve world welfare at the expenses of equitable considerations. In addition, the aggregate societal benefit outweighs the losses associated with specific group of countries, paving the way for easier political agreement, using compensation schemes to redistribute the proceeds.