The Green Market Transition
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The Green Market Transition

Carbon Taxes, Energy Subsidies and Smart Instrument Mixes

Edited by Stefan E. Weishaar, Larry Kreiser, Janet E. Milne, Hope Ashiabor and Michael Mehling

The Paris Agreement’s key objective is the strengthening of the global response to climate change by transitioning the world to an increasingly green economy. In this book, environmental tax and climate law experts examine carbon taxes energy subsidies, and support schemes for carbon and energy policies. Chapters reflect on the underlying policy dynamics and the constraints of various fiscal measures, and consider the harmonisation of smart instrument mixes.
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Chapter 6: Linking carbon tax systems under the Paris Agreement: potentials and risks

Nicolas Kreibich and Hanna Wang-Helmreich

Abstract

With the adoption of the Paris Agreement in December 2015, a new framework for international climate policy was created. Article 6 of this global agreement provides the basis for transferring mitigation outcomes across national borders, inter alia, by linking carbon pricing instruments. While linking of Emissions Trading Schemes (ETS) has already been studied to a wide extent, linking carbon taxes to other systems has until now received little attention in the literature. In light of the fact that a growing number of countries are introducing carbon taxes, this can be considered a serious knowledge gap. This chapter aims to fill this void by highlighting the potentials and risks of linking carbon tax systems with other carbon pricing instruments across national borders. The authors show that the linking of carbon tax systems can lead to significant climate integrity risks, potentially resulting in a net increase of greenhouse gas (GHG) emissions. The authors highlight different options as to how these risks can be addressed by making use of the new structure that has been established with the Paris Agreement. They conclude that the potentials and risks of linking carbon taxes with other carbon pricing instruments should be carefully analysed before such a link is established, as environmental integrity risks in particular can be considerably high.

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