Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins

Roberton Williams

No 16120, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers the question of under what circumstances a new environmental regulation should "phase in" gradually over time, rather than being immediately implemented at full force. The paper focuses particularly on climate policy, though its insights are more general. It shows that while adjustment costs provide a strong efficiency argument for phasing in a quantity-based regulation (or allowing intertemporal flexibility that creates the equivalent of a phase-in), this argument does not apply for price-based regulation. Indeed, in many cases, it will be more efficient to do just the opposite, setting an initially very high emissions price that then falls as the policy phases in. This difference in results comes not from any fundamental difference between price and quantity policies: under either policy, the efficient quantity of abatement rises over time, while the efficient price stays constant or even falls. But other considerations, such as distributional concerns or monitoring and enforcement issues, may still argue for a gradual phase-in even for a price-based policy.

JEL-codes: D62 H23 Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2010-06
Note: EEE PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins , Roberton C. Williams III. in The Design and Implementation of US Climate Policy , Fullerton and Wolfram. 2012

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Chapter: Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins (2011)
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