Optimal early action on greenhouse gas emissions

Peter Kennedy

Canadian Journal of Economics, 2002, vol. 35, issue 1, 16-35

Abstract: In this paper I argue that early action policies that focus on early actual emission reductions will tend to distort abatement investment decisions and thereby inflate the national compliance cost of a greenhouse gas emissions reduction target. Compliance cost savings stem from well-planned early action that may or may not yield early actual emission reductions. Thus, policies that target actual emission reductions, such as "credit for early action" or an aggressive, early "cap-and-trade" program, have the potential to be highly distorting. Simulation results from a model calibrated to the Canadian economy suggest that the associated welfare losses could be many billions of dollars.

Date: 2002
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