Could climate policy be conducted through pensions?

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Comerford, David and Dzido, Slawomir (2024) Could climate policy be conducted through pensions? Discussion paper. University of Strathclyde, Glasgow.

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Abstract

Despite the theoretical effectiveness of carbon taxes as an instrument of climate policy, political constraints still halt their more common adoption. Policymakers thus may need to implement climate policy via existing policy levers that are not explicitly labelled as carbon pricing. In this paper we evaluate a novel - potentially politically feasible - approach of conducting climate policy through the pension system. While typically policymakers grant tax relief on all pension savings, we suggest that the relief could be granted only on "green" savings. To model the policy, we rely on the Diamond-type overlapping generations framework. We find that, conditional on the unconstrained optimal policy implementing a 2°C temperature rise, our constrained optimal policy implements a 2.3°C temperature rise.

ORCID iDs

Comerford, David ORCID logoORCID: https://orcid.org/0000-0002-5541-736X and Dzido, Slawomir;
CORE (COnnecting REpositories)