Combining rate-based and cap-and-trade emissions policies

Carolyn Fischer

Climate Policy, 2003, vol. 3, issue sup2, S89-S103

Abstract: Rate-based emissions policies (like tradable performance standards, TPS) fix average emissions intensity, while cap-and-trade (CAT) 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 several policy options to offset the expansion, including a tax, an "exchange rate" to adjust for relative permit values, output-based allocation (OBA) for the rate-based sector, and tightening the cap. A range of combinations of tighter allocations could improve situations in both sectors with trade while holding emissions constant.© 2003 Elsevier Ltd. All rights reserved.

Date: 2003
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Working Paper: Combining Rate-Based and Cap-and-Trade Emissions Policies (2003)
Working Paper: Combining Rate-Based and Cap-and-Trade Emissions Policies (2003)
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DOI: 10.1016/j.clipol.2003.09.015

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