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Designing carbon markets. Part I: Carbon markets in time

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  • Fankhauser, Samuel
  • Hepburn, Cameron

Abstract

This paper analyses the design of carbon markets in time (i.e., intertemporally). It is part of a twin set of papers that ask, starting from first principles, what an optimal global carbon market would look like by around 2030. Our focus is on firm-level cap-and-trade systems, although much of what we say would also apply to government-level trading and carbon offset schemes. We examine the "first principles" of temporal design that would help to maximise flexibility and to minimise costs, including banking and borrowing and other mechanisms to provide greater carbon price predictability and credibility over time.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 38 (2010)
Issue (Month): 8 (August)
Pages: 4363-4370

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Handle: RePEc:eee:enepol:v:38:y:2010:i:8:p:4363-4370

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Web page: http://www.elsevier.com/locate/enpol

Related research

Keywords: Carbon trading Banking and borrowing EU ETS;

References

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  1. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
  2. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
  3. Michael Hoel & Larry Karp, 1999. "Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty," Working Papers 1999.15, Fondazione Eni Enrico Mattei.
  4. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Pizer, William & Newell, Richard, 1998. "Regulating Stock Externalities Under Uncertainty," Discussion Papers dp-99-10-rev, Resources For the Future.
  6. Aldy, Joseph & Barrett, Scott & Stavins, Robert, 2003. "Thirteen Plus One: A Comparison of Global Climate Policy Architectures," Working Paper Series rwp03-012, Harvard University, John F. Kennedy School of Government.
  7. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
  8. Brian C. Murray & Richard G. Newell & William A. Pizer, 2008. "Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade," NBER Working Papers 14258, National Bureau of Economic Research, Inc.
  9. Jacoby, Henry D. & Ellerman, A. Denny, 2004. "The safety valve and climate policy," Energy Policy, Elsevier, vol. 32(4), pages 481-491, March.
  10. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-51, September.
  11. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics 0644, Faculty of Economics, University of Cambridge.
  12. Gilbert E. Metcalf, 2009. "Cost Containment in Climate Change Policy: Alternative Approaches to Mitigating Price Volatility," NBER Working Papers 15125, National Bureau of Economic Research, Inc.
  13. Dieter Helm & Cameron Hepburn & Richard Mash, 2003. "Credible Carbon Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 438-450.
  14. Richard Newell & William Pizer & Jiangfeng Zhang, 2005. "Managing Permit Markets to Stabilize Prices," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, 06.
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Citations

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Cited by:
  1. Alexander Brauneis & Michael Loretz & Roland Mestel & Stefan Palan, 2011. "Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading," Working Papers 2011.74, Fondazione Eni Enrico Mattei.
  2. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2011. "Combining multiple climate policy instruments: how not to do it," LSE Research Online Documents on Economics 37573, London School of Economics and Political Science, LSE Library.
  3. Nicholas Howarth, 2011. "Clean Energy Technology and the Role of Non-Carbon Price-Based Policy: An Evolutionary Economics Perspective," European Planning Studies, Taylor & Francis Journals, vol. 20(5), pages 871-891, October.
  4. Perkis, David F. & Cason, Timothy N. & Tyner, Wallace E., 2012. "An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124096, Agricultural and Applied Economics Association.
  5. Spencer, Thomas & Marcey, Celine & Colombier, Michel & Guerin, Emmanuel, 2011. "Decarbonizing the EU power sector: policy approaches in the light of current trends and long-term trajectories," MPRA Paper 35009, University Library of Munich, Germany.
  6. Sven Rudolph & Christine Lenz & Barbara Volmert & Achim Lerch, 2011. "Towards Sustainable Carbon Markets: Requirements for Ecologically Effective, Economically Efficient, and Socially Just Emissions Trading Schemes," MAGKS Papers on Economics 201134, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2011. "Combining multiple climate policy instruments: how not to do it," Grantham Research Institute on Climate Change and the Environment Working Papers 38, Grantham Research Institute on Climate Change and the Environment.

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