Combining Rate-Based and Cap-and-Trade Emissions Policies

Carolyn Fischer

RFF Working Paper Series from Resources for the Future

Abstract: Rate-based emissions policies (like tradable performance standards) fix average emissions intensity, while cap-and-trade policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider a range of policy options to offset the expansion, including unilateral ones when jurisdictional differences require. The cap-and-trade jurisdiction could impose an "exchange rate" to adjust for relative permit values, but marginal abatement cost equalization is sacrificed. Still, that jurisdiction may prefer adjusted trade over tightening their own cap, which transfers away rents. Although the rate-based sector would have to implement the switch to output-based allocation of a cap, its surplus would be higher than with adjusted trade, which is also preferred to no trade. The cap-and-trade sector would also be better off. Thus, a range of combinations of tighter allocations could improve situations in both sectors with trade, while holding emissions constant.

Keywords: emissions trading; permit allocation; tradable performance standards; climate; greenhouse gases (search for similar items in EconPapers)
JEL-codes: H23 H3 Q2 Q48 (search for similar items in EconPapers)
Date: 2003-05-01
New Economics Papers: this item is included in nep-ene, nep-int and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

Downloads: (external link)
http://www.rff.org/RFF/documents/RFF-DP-03-32.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rff.org/RFF/documents/RFF-DP-03-32.pdf [301 Moved Permanently]--> https://www.rff.org/RFF/documents/RFF-DP-03-32.pdf)

Related works:
Journal Article: Combining rate-based and cap-and-trade emissions policies (2003)
Working Paper: Combining Rate-Based and Cap-and-Trade Emissions Policies (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-03-32

Access Statistics for this paper

More papers in RFF Working Paper Series from Resources for the Future Contact information at EDIRC.
Bibliographic data for series maintained by Resources for the Future ().