Why Finance Ministers Favor Carbon Taxes, Even If They Do Not Take Climate Change into Account

"Finance ministers are facing strong demand for public investments in education, security or transport -- pricing CO2 turns out to be a suitable means of raising the revenues that are needed," says Max Franks from the Potsdam Institute for Climate Impact Research (PIK), lead-author of the study.  "Finance ministers can put money into infrastructure that substantially and lastingly improves public welfare.  This is something you can count in dollars.  And along the way they save the climate, since pricing CO2 yields a strong incentive to reduce emissions.  You could call it a double sustainability dividend."

In our globalized world, taxing a firm's capital assets is difficult
In contrast, it is difficult for governments to raise additional taxes on a firm's capital assets or on labor.  "In our globalized world, it has become relatively easy for capital - and in fact for whole companies - to relocate to another, low-tax country," says co-author Ottmar Edenhofer, chief-economist of PIK.  Payroll taxes, being the alternative, reduce consumption and can raise social issues.  "We have been surprised how robust our results are," adds Edenhofer.  "No matter whether other countries are taxing emissions or if the fossil fuel market is dominated by a near-monopoly OPEC or by perfect competition, virtually all of the scenarios we computed show that CO2 pricing has a positive economic effect - even without considering the additional benefits of avoided climate change damages."

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