[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/rff/dpaper/dp-22-18.html
   My bibliography  Save this paper

A Net-Zero Target Compels a Backwards Induction Approach to Climate Policy

Author

Listed:
  • Dolphin, Geoffroy

    (Resources for the Future)

  • Pahle, Michael
  • Burtraw, Dallas

    (Resources for the Future)

  • Kosch, Mirjam
Abstract
Jurisdictions around the world increasingly affirm their contributions to the 2015 Paris Agreement by pledging net zero targets. We argue that delivering on a net-zero target compels a backward induction approach to climate policy, which differs from the prevailing approach by stipulating that the objective for designing policy pathways must change from minimizing the cost of the policy to maximizing its credibility. Our argument rests on the premise that private investments play a key role for net zero, and to align them with net zero, getting expectations right is more relevant than getting the prices right. Backward induction compels a dynamically consistent pathway that can overcome the problem that emitters may expect the rules and targets of climate policy as open for constant political renegotiation. We furthermore sketch the main elements for a regulatory strategy to put this approach into action that builds on instilling commitment.

Suggested Citation

  • Dolphin, Geoffroy & Pahle, Michael & Burtraw, Dallas & Kosch, Mirjam, 2022. "A Net-Zero Target Compels a Backwards Induction Approach to Climate Policy," RFF Working Paper Series 22-18, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-22-18
    as

    Download full text from publisher

    File URL: https://www.rff.org/documents/3567/WP_22-18_OZqgnu0.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Harstad, Bård & Eskeland, Gunnar S., 2010. "Trading for the future: Signaling in permit markets," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 749-760, October.
    2. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    3. Dengler, Sebastian & Gerlagh, Reyer & Trautmann, Stefan T. & van de Kuilen, Gijs, 2018. "Climate policy commitment devices," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 331-343.
    4. Bård Harstad, 2016. "The Dynamics Of Climate Agreements," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 719-752, June.
    5. Grey, Felix, 2018. "Corporate lobbying for environmental protection," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 23-40.
    6. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(2), pages 173-191.
    7. Harris Dellas & George S. Tavlas, 2022. "Retrospectives: On the Evolution of the Rules versus Discretion Debate in Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 245-260, Summer.
    8. Jonas Meckling & Thomas Sterner & Gernot Wagner, 2017. "Policy sequencing toward decarbonization," Nature Energy, Nature, vol. 2(12), pages 918-922, December.
    9. Steffen Brunner & Christian Flachsland & Robert Marschinski, 2012. "Credible commitment in carbon policy," Climate Policy, Taylor & Francis Journals, vol. 12(2), pages 255-271, March.
    10. Karin Edvardsson & Sven Hansson, 2005. "When is a goal rational?," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 24(2), pages 343-361, April.
    11. Alan S. Blinder, 2000. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, American Economic Association, vol. 90(5), pages 1421-1431, December.
    12. Laurent Drouet & Valentina Bosetti & Simone A. Padoan & Lara Aleluia Reis & Christoph Bertram & Francesco Dalla Longa & Jacques Després & Johannes Emmerling & Florian Fosse & Kostas Fragkiadakis & Ste, 2021. "Net zero-emission pathways reduce the physical and economic risks of climate change," Nature Climate Change, Nature, vol. 11(12), pages 1070-1076, December.
    13. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stéphane, 2018. "When starting with the most expensive option makes sense: Optimal timing, cost and sectoral allocation of abatement investment," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 210-233.
    14. M. Pahle & O. Tietjen & S. Osorio & F. Egli & B. Steffen & T. S. Schmidt & O. Edenhofer, 2022. "Safeguarding the energy transition against political backlash to carbon markets," Nature Energy, Nature, vol. 7(3), pages 290-296, March.
    15. Jean Pisani-Ferry, 2021. "Climate policy is macroeconomic policy, and the implications will be significant," Policy Briefs PB21-20, Peterson Institute for International Economics.
    16. Reyer Gerlagh & Matti Liski, 2018. "Consistent climate policies," Journal of the European Economic Association, European Economic Association, vol. 16(1), pages 1-44.
    17. Daniela Fietze & Mats Kröger & Thorsten Müller & Karsten Neuhoff, 2021. "Ein wirksames Klimaschutzgesetz braucht Frühindikatoren," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 88(41), pages 679-687.
    18. Dallas Burtraw & Charles Holt & Karen Palmer & William Shobe, 2022. "Price-Responsive Allowance Supply in Emissions Markets," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(5), pages 851-884.
    19. Michael Pahle & Dallas Burtraw & Christian Flachsland & Nina Kelsey & Eric Biber & Jonas Meckling & Ottmar Edenhofer & John Zysman, 2018. "Sequencing to ratchet up climate policy stringency," Nature Climate Change, Nature, vol. 8(10), pages 861-867, October.
    20. Lawrence H. Goulder, 2020. "Timing Is Everything: How Economists Can Better Address the Urgency of Stronger Climate Policy," Review of Environmental Economics and Policy, University of Chicago Press, vol. 14(1), pages 143-156.
    21. Christian Gollier and Jean Tirole, 2015. "Negotiating effective institutions against climate change," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    22. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chiappinelli, Olga & May, Nils, 2022. "Too good to be true? Time-inconsistent renewable energy policies," Energy Economics, Elsevier, vol. 112(C).
    2. Kalk, Andrei & Sorger, Gerhard, 2023. "Climate policy under political pressure," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    3. Sterner, Thomas & Ewald, Jens & Sterner, Erik, 2024. "Economists and the climate," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    4. Acemoglu, Daron & Rafey, Will, 2023. "Mirage on the horizon: Geoengineering and carbon taxation without commitment," Journal of Public Economics, Elsevier, vol. 219(C).
    5. Nabila Arfaoui & Eric Brouillat & Maïder Saint-Jean, 2015. "The Impact of REACH on Eco-Innovation: How Perception Misfits on Policy Stringency Matter," GREDEG Working Papers 2015-45, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    6. Estelle Cantillon & Aurélie Slechten, 2023. "Market Design for the Environment," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.
    7. Edenhofer, Ottmar & Flachsland, Christian & Kalkuhl, Matthias & Knopf, Brigitte & Pahle, Michael, 2019. "Optionen für eine CO2-Preisreform," Working Papers 04/2019, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    8. Halvor B. Storrøsten, 2020. "Emission Regulation of Markets with Sluggish Supply Structures," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(1), pages 1-33, September.
    9. Mattauch, Linus & Hepburn, Cameron & Stern, Nicholas, 2018. "Pigou pushes preferences: decarbonisation and endogenous values," INET Oxford Working Papers 2018-16, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    10. David Klenert & Franziska Funke & Linus Mattauch & Brian O’Callaghan, 2020. "Five Lessons from COVID-19 for Advancing Climate Change Mitigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 751-778, August.
    11. Coenen, Günter & Lozej, Matija & Priftis, Romanos, 2024. "Macroeconomic effects of carbon transition policies: An assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector," European Economic Review, Elsevier, vol. 167(C).
    12. Peter J. Boettke & Alexander W. Salter & Daniel J. Smith, 2018. "Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability," Public Choice, Springer, vol. 176(3), pages 529-555, September.
    13. Sebastian Levi & Christian Flachsland & Michael Jakob, 2020. "Political Economy Determinants of Carbon Pricing," Global Environmental Politics, MIT Press, vol. 20(2), pages 128-156, May.
    14. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    15. Aalbers, Rob & Shestalova, Victoria & Kocsis, Viktória, 2013. "Innovation policy for directing technical change in the power sector," Energy Policy, Elsevier, vol. 63(C), pages 1240-1250.
    16. Benford, Frank A., 1998. "On the Dynamics of the Regulation of Pollution: Incentive Compatible Regulation of a Persistent Pollutant," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 1-25, July.
    17. Cleiton Silva de Jesus & Thiago Rios Lopes & Silvana Dantas Guimarães, 2017. "Monetary policy credibility and inflation in an emerging economy," Economics Bulletin, AccessEcon, vol. 37(2), pages 778-789.
    18. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    19. Fabre, Adrien & Fodha, Mouez & Ricci, Francesco, 2020. "Mineral resources for renewable energy: Optimal timing of energy production," Resource and Energy Economics, Elsevier, vol. 59(C).
    20. Adrien Vogt-Schilb & St�phane Hallegatte & Christophe de Gouvello, 2015. "Marginal abatement cost curves and the quality of emission reductions: a case study on Brazil," Climate Policy, Taylor & Francis Journals, vol. 15(6), pages 703-723, November.
    21. Linda S. Goldberg & Michael W. Klein, 2005. "Establishing Credibility: Evolving Perceptions of the European Central Bank," NBER Working Papers 11792, National Bureau of Economic Research, Inc.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-22-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Resources for the Future (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.