Carbon Taxes and Renewable Energy
Subsidies: A Discussion About the Green
Paradox
Maria Elisa Belfiori
Abstract What is the optimal policy to control carbon emissions that cause climate
change? Climate change is a global phenomenon, and the solution to it is a carbon
tax. What is an optimal policy? An optimal policy tackles the problem with the least
economic distortions. Under some assumptions, the optimal carbon tax depends
on three parameters only, which is very useful because it provides a simple rule
for governments to follow. A related strategy, broadly adopted in many countries
worldwide, is the subsidization of renewable energy. Subsidies to renewable energy
are optimal if there are externalities in the sector. These may come from a learningby-doing curve or technological spillovers. Otherwise, the subsidies add undesired
economic distortions. Furthermore, renewable subsidies can be counterproductive as
they may lead to an increase in overall emissions.
Keywords Climate change · Carbon tax · Renewable subsidies · Optimal policy ·
Green paradox
In Need: A Global Climate Policy
Carbon emissions are global and long-lived. About 80% of carbon dioxide released
into the atmosphere has a mean lifetime of 300 years (Archer 2005), and this is
regardless of where emissions originate. From an economic perspective, climate
change is the problem of an externality. Carbon emissions released while burning
fossil fuels contribute to global warming, and nobody pays for its consequences.
M. E. Belfiori (B)
School of Business, Universidad Torcuato Di Tella, Av. Figueroa Alcorta 7350, C1428BIJ Buenos
Aires, Argentina
e-mail: ebelfiori@utdt.edu
© Springer Nature Switzerland AG 2021
M. E. Belfiori and M. J. Rabassa, (eds.) The Economics of Climate Change
in Argentina, The Latin American Studies Book Series,
https://doi.org/10.1007/978-3-030-62252-7_6
115
Subsidies: A Discussion About the Green
Paradox
Maria Elisa Belfiori
Abstract What is the optimal policy to control carbon emissions that cause climate
change? Climate change is a global phenomenon, and the solution to it is a carbon
tax. What is an optimal policy? An optimal policy tackles the problem with the least
economic distortions. Under some assumptions, the optimal carbon tax depends
on three parameters only, which is very useful because it provides a simple rule
for governments to follow. A related strategy, broadly adopted in many countries
worldwide, is the subsidization of renewable energy. Subsidies to renewable energy
are optimal if there are externalities in the sector. These may come from a learningby-doing curve or technological spillovers. Otherwise, the subsidies add undesired
economic distortions. Furthermore, renewable subsidies can be counterproductive as
they may lead to an increase in overall emissions.
Keywords Climate change · Carbon tax · Renewable subsidies · Optimal policy ·
Green paradox
In Need: A Global Climate Policy
Carbon emissions are global and long-lived. About 80% of carbon dioxide released
into the atmosphere has a mean lifetime of 300 years (Archer 2005), and this is
regardless of where emissions originate. From an economic perspective, climate
change is the problem of an externality. Carbon emissions released while burning
fossil fuels contribute to global warming, and nobody pays for its consequences.
M. E. Belfiori (B)
School of Business, Universidad Torcuato Di Tella, Av. Figueroa Alcorta 7350, C1428BIJ Buenos
Aires, Argentina
e-mail: ebelfiori@utdt.edu
© Springer Nature Switzerland AG 2021
M. E. Belfiori and M. J. Rabassa, (eds.) The Economics of Climate Change
in Argentina, The Latin American Studies Book Series,
https://doi.org/10.1007/978-3-030-62252-7_6
115