Prices versus quantities versus bankable quantities

Harrison Fell, Ian MacKenzie and William Pizer

Resource and Energy Economics, 2012, vol. 34, issue 4, 607-623

Abstract: Quantity-based regulation with banking allows regulated firms to shift obligations across time in response to periods of unexpectedly high or low marginal costs. Despite its wide prevalence in existing and proposed emission trading programs, banking has received limited attention in past welfare analyses of policy choice under uncertainty. We address this gap with a model of banking behavior that captures two key constraints: uncertainty about the future from the firm's perspective and a limit on negative bank values (e.g. borrowing). We show conditions where banking provisions reduce price volatility and lower expected costs compared to quantity policies without banking. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities produce behavior quite similar to price policies for about two decades and, during this period, improve welfare by about a $1 billion per year over fixed quantities.

Keywords: Prices; Quantities; Climate change; Allowance banking (search for similar items in EconPapers)
JEL-codes: Q5 Q52 Q54 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Working Paper: Prices versus Quantities versus Bankable Quantities (2012)
Working Paper: Prices versus Quantities versus Bankable Quantities (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:34:y:2012:i:4:p:607-623

DOI: 10.1016/j.reseneeco.2012.05.004

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