What is most significant about this work is that both councils now explicitly endorse two rather radical ideas (even if sometimes as one option among several), and that they do so in order to take seriously the political economy of climate change policy. In other words, they have set themselves the task of designing good economic policy in a way that makes it politically acceptable nationally and politically effective globally.
The first proposal — clearly in response to the political trauma of the gilets jaunes protests in France — is that any revenues from carbon taxes should be returned to the private sector rather than enter the government budget to be used for other purposes. The French CAE has developed a concrete and costed proposal for direct cash distribution of carbon tax revenue, in the form of regular “carbon cheques” to households. Its preferred version, where the carbon tax varies with household income and between cities and the countryside, can make virtually below-median-income households better off…
Second, both groups have also raised the possibility of linking trade openness to trading partners’ efforts to combat climate change. The German report explicitly envisages a “carbon border adjustment”. This would be a tax on the CO2 content of imported goods. The joint statement lists a number of alternative trade tools to use against countries with only weak regulation of carbon emissions, or to incentivise those trading partners with strong climate commitments to stick to them.
The tide is turning. A carbon tax that is returned as cash to the people is seriously on the table in Europe. The less energy you use the more the cash is extra income. Brilliant! @MESandbu @FT https://t.co/1xgR0MNyra via @financialtimes
— Carlota Perez (@CarlotaPrzPerez) July 19, 2019