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Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine
This paper calculates, for the top twenty emitting countries, how much pricing of carbon dioxide (CO2) emissions is in their own national interests due to domestic co-benefits (leaving aside the global climate benefits). On average, nationally efficient prices are substantial, $57.5 per ton of CO2 (for year 2010), reflecting primarily health co-benefits from reduced air pollution at coal plants and, in some cases, reductions in automobile externalities (net of fuel taxes/subsidies). Pricing co-benefits reduces CO2 emissions from the 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 to pollution) and differentiated pricing of CO2 emissions therefore yields higher net benefits (by 23 percent) than uniform pricing. Importantly, the efficiency case for pricing carbon’s co-benefits hinges critically on (i) weak prospects for internalizing other externalities through other pricing instruments and (ii) productive use of carbon pricing revenues.
Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine

I. Introduction There has been much agonizing over achieving the collective benefits from addressing global climate change. However, pricing carbon dioxide (CO 2 ) emissions from fossil fuel use can produce important national co-benefits. Most obviously, as carbon charges reduce use of coal, natural gas, and petroleum products, this reduces the amount of people killed by outdoor air pollution, currently estimated at 3.7 million a year worldwide. 1 To take another example, if congestion, accidents, and other externalities from motor vehicle use are not

Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine

/Subsidies, 2010 7. Nationally Efficient CO 2 Prices due to Domestic Co-Benefits, 2010 8. Emissions Reductions, and Sources of Reductions by Fuel Type, 2010 9. Breakdown of Nationally Efficient Carbon Price by Fuel Type, 2010 10. Net Benefits from Nationally Efficient and Uniform Pricing, 2010 11. Revenue from Nationally Efficient Carbon Prices, 2010 12. Net Benefits from Carbon Pricing Accounting for Fiscal Linkages, 2010 Box 1. Other Externalities from Energy Use Appendix Methodology Underlying non-CO2 External Damages References