How Much Carbon Pricing is in Countries’ Own Interests? The Critical Role of Co-Benefits

This paper calculates, for the top twenty emitting countries, how much pricing of carbondioxide (CO2) emissions is in their own national interests due to domestic co-benefits(leaving aside the global climate benefits). On average, nationally efficient prices aresubstantial, $57.5 per ton of CO2 (for year 2010), reflecting primarily health co-benefitsfrom reduced air pollution at coal plants and, in some cases, reductions in automobileexternalities (net of fuel taxes/subsidies). Pricing co-benefits reduces CO2 emissions fromthe top twenty emitters by 13.5 percent (a 10.8 percent reduction in global emissions).However, co-benefits vary dramatically across countries (e.g., with population exposure topollution) and differentiated pricing of CO2 emissions therefore yields higher net benefits(by 23 percent) than uniform pricing. Importantly, the efficiency case for pricing carbon'sco-benefits hinges critically on (i) weak prospects for internalizing other externalitiesthrough other pricing instruments and (ii) productive use of carbon pricing revenues.