The Price Mechanism and Eco-efficiency: The Role of Green Fiscal Reform

摘要

Achieving the kinds of environmental improvements that are now required for environmental sustainability requires huge investments. With current public sector deficits, most of these investments will need to be made by the private sector. The private sector will not make them, however, unless private companies can make normal profits and investors can make normal returns. Low-carbon/environmentally beneficial technologies are more expensive than their least-cost alternatives. These technologies therefore need subsidies and support if they are to be deployed. For low-carbon technologies, this support may come through a carbon price or be technology specific. Both may be needed and optimal (the carbon price because of the environmental externality; technology support because of the innovation externality). The carbon price should rise over time, to give a pervasive signal for eco-innovation and eco-efficiency throughout the economy. This will also choke off the rebound effect and will change behavior toward low-carbon lifestyles.