The Political Economy of Climate Change Policies: Political Economy Aspects of Climate Change Mitigation Efforts

Regardless of the policies used to mitigate climate change, a positive and relatively high price of carbon will have to be established, with slow convergence across regions, leading to huge rents up to capture, way beyond those that have been fought over in the GATT-based international trading system. The paper explores the political-economy, feasibility and desirability implications of the two main alternatives, a carbon tax and a cap-and-trade (CAT) system. Having the same concerns, CAT systems in the EU and the US have accounted for different outcomes in each case. Likely leakages under foreseeable carbon prices are estimated to be small and not of an order of magnitude justifying the special allowances sought across a wide spectrum of industries.