Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade

Brian C. Murray, Richard Newell () and William A. Pizer

Discussion Papers from Resources For the Future

Abstract: On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change -- such as taxes or a “safety-valve” price ceiling for cap-and-trade -— while environmental advocates have sought a more clear quantitative limit on emissions. This paper presents a simple modification to the idea of a safety valve -- a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to tax or other price-based policies. The last point highlights the deficiencies in several previous studies of price and quantity controls for climate change that do not adequately capture the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.

Keywords: climate change; regulation; uncertainty; welfare; prices; quantities (search for similar items in EconPapers)
JEL-codes: Q54 Q58 L51 D8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2008-07-15
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http://www.rff.org/documents/RFF-DP-08-24.pdf (application/pdf)

Related works:
Working Paper: Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade (2008)
Journal Article: Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:rff:dpaper:dp-08-24

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