The double dividend of carbon rights

Typically, generations cannot provide for the climate of their offspring by acting individually. Hence, without policy intervention, future generation s are likely to be wealthier in terms of physical capital endowment, but po orer in terms of environment quality. It is common sense, at least among ec onomists, that investing in future climate conditions must reduce the accum ulation of physical capital and inescapably leads to losses in economic gro wth and material wealth. Our simulations, however, indicate that there are good reasons to believe that climate policy can have a double dividend if p roperty rights on carbon emissions are used for policy intervention. First, they reduce the economic damage of climate change. Second, they generate a significant redistribution of income. This may lead to a larger physical c apital stock and therefore to an increase in social welfare.