American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
A Welfare Analysis of Policies Impacting Climate Change
American Economic Review
(pp. 2368–2421)
Abstract
We study the welfare impacts of 96 climate-related tax and spending policies. We extend and apply the marginal value of public funds (MVPF) framework, most notably providing a new method for incorporating learning-by-doing spillovers. We find subsidies for the production of clean energy (such as wind production tax credits) have higher MVPFs than all other subsidies in our sample, including EV subsidies. Conservation nudges have large MVPFs when targeting regions with dirty grids. Fuel taxes and cap-and-trade policies are highly efficient means of raising revenue. We also construct traditional cost-per-ton estimates and compare and contrast the lessons they provide.Citation
Hahn, Robert W., Nathaniel Hendren, Robert D. Metcalfe, and Ben Sprung-Keyser. 2026. "A Welfare Analysis of Policies Impacting Climate Change." American Economic Review 116 (7): 2368–2421. DOI: 10.1257/aer.20250166Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L62 Automobiles; Other Transportation Equipment; Related Parts and Equipment
- Q42 Alternative Energy Sources
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- Q58 Environmental Economics: Government Policy