Global carbon price asymmetry

This paper studies a social planner who chooses countries’ carbon prices so as to maximize global welfare. Product markets are characterized by firm heterogeneity, market power, and international trade. Because of the market-power distortion, planner’s optimal policy is second-best. The main insight that may be highly asymmetric: zero in some countries above cost with relatively dirty production. result obtains even though uniform price always successful at reducing emissions. Competition mitigates power enable stronger climate action.