Combining Price and Quantity Controls under Partitioned Environmental Regulation

Sebastian Rausch and Jan Abrell

No 16/233, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper analyzes hybrid emissions trading systems (ETS) under partitioned environmental regulation when firms’ abatement costs and future emissions are uncertain. We show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against differences in marginal abatement costs across partitions. Price bounds are more efficient than abatement bounds as they also use information on firms’ abatement technologies while abatement bounds can only address emissions uncertainty. Using a numerical stochastic optimization model with equilibrium constraints for the European carbon market, we find that introducing hybrid policies in EU ETS reduces expected excess abatement costs of achieving targeted emissions reductions under EU climate policy by up to 89 percent. We also find that under partitioned regulation there is a high likelihood for hybrid policies to yield sizeable ex-post cost reductions.

Keywords: Emissions trading; Partitioned environmental regulation; Uncertainty; Prices; Quantities; EU ETS (search for similar items in EconPapers)
JEL-codes: C63 H23 Q54 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-03
New Economics Papers: this item is included in nep-cmp, nep-ene, nep-env, nep-eur, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Combining price and quantity controls under partitioned environmental regulation (2017)
Working Paper: Combining Price and Quantity Controls under Partitioned Environmental Regulation (2016)
Working Paper: Combining Price and Quantity Controls under Partitioned Environmental Regulation (2016)
Working Paper: Combining Price and Quantity Controls under Partitioned Environmental Regulation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eth:wpswif:16-233

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