Yet the instrument of pricing global CO2 emissions could generate a revenue of 32 trillion US dollars over the 21st century, exceeding by far the 12 trillion US dollars reduction of fossil fuel owners' profits, according to a study now published by scientists of the Potsdam Institute for Climate Impact Research. The analysis of the interference of CO2 emission pricing with fossil fuel markets adds key information to the debate on macro-economic effects of climate change mitigation.
"Implementing ambitious climate targets would certainly scale down fossil fuel consumption, so with reduced demand their prices would drop," says Nico Bauer, lead-author of the study. "The resulting profit loss would be overcompensated by revenues from auctioning emissions permits or taxing CO2, which are two of the possible instruments of climate policy." They would set strong incentives to reduce greenhouse-gases. The present study for the first time - provides a full characterization of the fossil fuel markets and the impacts of climate policies. "We were surprised to find that in fact revenues from emissions pricing were found to be at least twice as high than the profit losses we estimate for the owners of fossil fuels."
"There might be many appetites for the money"
Still, this holds at the global level only. On the national level, things look different, the scientists point out. Fossil fuel income depends on natural endowments, which are not distributed equally across the world. The distribution of revenues from emissions pricing depends on how climate policies are implemented on a national and international level. "Moreover, revenues from pricing carbon cannot be simply seen as a compensatory fund for the loss of income from fossil fuels," says Bauer. "This is because climate policy results in higher energy prices for households and companies, which lead to a rather small reduction of economic output. So there might be many appetites for th
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Potsdam Institute for Climate Impact Research (PIK)