Managing Permit Markets to Stabilize Prices

William Pizer, Richard Newell and Jiangfeng Zhang

RFF Working Paper Series from Resources for the Future

Abstract: The political economy of environmental policy favors the use of quantity-based instruments over price-based instruments (e.g., tradable permits over green taxes), at least in the United States. With cost uncertainty, however, there are clear efficiency advantages to prices in many cases, especially for stock pollutants such as greenhouse gases. The question arises, therefore, of whether one can design flexible quantity policies that mimic the behavior of price policies, namely stable permit prices and abatement costs. We explore a number of “quantity-plus” policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs. They do so without necessitating any monetary exchanges between the government and the regulated firms, which can be a significant political barrier to the use of price instruments.

Keywords: permit market; prices; quantities; banking; borrowing; uncertainty (search for similar items in EconPapers)
JEL-codes: D8 L51 Q28 Q48 (search for similar items in EconPapers)
Date: 2003-06-01
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Managing Permit Markets to Stabilize Prices (2005)
Working Paper: Managing Permit Markets to Stabilize Prices (2003)
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