Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade

Brian Murray, Richard Newell and William Pizer

RFF Working Paper Series from Resources for the Future

Abstract: On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change -- such as taxes or a “safety-valve” price ceiling for cap-and-trade -— while environmental advocates have sought a more clear quantitative limit on emissions. This paper presents a simple modification to the idea of a safety valve -- a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to tax or other price-based policies. The last point highlights the deficiencies in several previous studies of price and quantity controls for climate change that do not adequately capture the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.

Keywords: climate change; regulation; uncertainty; welfare; prices; quantities (search for similar items in EconPapers)
JEL-codes: D8 L51 Q54 Q58 (search for similar items in EconPapers)
Date: 2008-07-15
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 (15)

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Related works:
Journal Article: Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade (2009)
Working Paper: Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade (2008)
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