 A 'safety deposit' mechanism for US climate policyBryan K. Mignone Climate Policy, 2010, vol. 10, issue 2, 232-238 Abstract: US policy makers are currently evaluating options to reduce domestic carbon dioxide emissions, and several economy-wide cap-and-trade proposals have been put forward in the 111th Congress. Despite mounting enthusiasm for cap-and-trade, advocates of this approach have had to defend such proposals against the criticisms that prices in the resulting carbon market will be unstable and that the implied costs of policy might exceed society's willingness to pay for the expected environmental benefits. Allowance borrowing has been proposed as one solution to both of these concerns, with firm-level borrowing intended to mitigate the impacts of transient cost shocks, and system-level borrowing intended to hedge against the risk of early technology bottlenecks. Each of these mechanisms, as proposed, relies upon prescribed constraints, such as interest payments or quantity limits, to protect against overuse. This article introduces a novel mechanism that offers qualitatively similar protection-a firm-level deposit on borrowed allowances that is refundable upon repayment of the emissions debt. However, the deposit mechanism is shown to be both more economically efficient and more effective in mitigating performance risk, when compared to the existing alternatives. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:tcpoxx:v:10:y:2010:i:2:p:232-238 Ordering information: This journal article can be ordered from Access Statistics for this article Climate Policy is currently edited by Professor Michael Grubb More articles in Climate Policy from Taylor & Francis Journals |
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