“Lock-in” Effect of Emission Standard and Its Impact on the Choice of Market Based Instruments

Haoqi Qian, Libo Wu () and Weiqi Tang

MPRA Paper from University Library of Munich, Germany

Abstract: A country’s existing emission standard policy will lead to a “lock in” effect. When the country plans to adopt new market-based instruments to control greenhouse gas emissions, it must consider this effect as it chooses among instruments to avoid larger efficiency loss. In this paper, we find that the “lock in” effect will cause a kink point to occur on the marginal abatement cost (MAC) curve. This change of shape for the MAC curve reminds us to be cautious in choosing market-based instruments when applying Weitzman’s rule. We also introduce this concept into a dynamic multi-regional computable general equilibrium (CGE) model for China and simulate MAC curves for all regions. After applying Weitzman’s rule, we propose a timeline for introducing price instruments under different marginal benefit (MB) curve scenarios.

Keywords: Lock-in Effect; Marginal Abatement Cost Curve; Cap and Trade of Carbon Emissions Rights; Carbon Tax (search for similar items in EconPapers)
JEL-codes: C68 Q58 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-cmp, nep-ene, nep-env and nep-ger
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Related works:
Journal Article: “Lock-in” effect of emission standard and its impact on the choice of market based instruments (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72470

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