Are Climate Policies Marginal? A Welfare Evaluation of Environmental Reforms

Which climate investments should policymakers prioritize? We develop a framework that combines the Marginal Value of Public Funds (MVPF) with structural models of demand for green technologies to evaluate the welfare effects of environmental reforms. Our approach traces the MVPF across the entire policy spectrum using counterfactual simulations, thereby relaxing the constant-elasticity and “small-change” assumptions of sufficient-statistics methods. We apply our method to several papers studying environmental reforms using a structural estimation.