Handbook on Energy and Climate Change
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Handbook on Energy and Climate Change

Edited by Roger Fouquet

This timely Handbook reviews many key issues in the economics of energy and climate change, raising new questions and offering solutions that might help to minimize the threat of energy-induced climate change.
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Chapter 16: Fiscal instruments for climate finance

Ian Parry


At the 2010 global climate talks in Cancun, Mexico, developed countries reaffirmed a pledge to raise $100 billion per year by 2020, and $30 billion in total between 2010 and 2012, for financing climate mitigation and adaptation projects in developing countries. While efficient use of such revenues is important for environmental effectiveness (and policy credibility), the focus here is entirely on how the funding sources might be mobilized. Furthermore, the discussion is confined to public sources of revenue, as (mostly) applicable to developed countries. The advisory group on climate finance established by the UN Secretary-General (AGF, 2010a) evaluated a wide range of carbon-related and other fiscal instruments for climate finance, on multiple criteria, especially revenue potential. The instruments examined included domestic, carbon-related taxes (e.g. carbon taxes, taxes on electricity use), broader domestic instruments (e.g. taxes on the financial sector), and charges on international transportation (aviation and maritime) activities. This chapter goes into a bit more detail on some aspects, particularly environmental effectiveness, welfare costs and incidence of these policies, as well as considering some additional instruments (e.g. ‘feebates’, motor fuel taxes, vehicle taxes and petroleum levies). Possibilities for improving the acceptability of carbon pricing instruments are also discussed. Table 16.1 provides a summary of the main points from the narrative.

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