Keywords: carbon rights, climate change, overlapping generations
The double dividend of carbon rights
Typically, generations cannot provide for the climate of their offspring by acting individually. Hence, without policy intervention, future generations are likely to be wealthier in terms of physical capital endowment, but poorer in terms of environment quality. It is common sense, at least among economists, that investing in future climate conditions must reduce the accumulation of physical capital and inescapably leads to losses in economic growth and material wealth. Our simulations, however, indicate that there are good reasons to believe that climate policy can have a double dividend if property rights on carbon emissions are used for policy intervention. First, they reduce the economic damage of climate change. Second, they generate a significant redistribution of income. This may lead to a larger physical capital stock and therefore to an increase in social welfare.