Optimal mix of emissions taxes and cap-and-trade
AbstractIn practice, different emitters of a particular pollutant are sometimes subjected to different control mechanisms. This paper focuses on the situation where a part of the economy is regulated by a cap-and-trade program, while the rest is subjected to an emissions tax. Using an extended version of Weitzman's 'Prices vs. Quantities' model [M.L. Weitzman, Prices vs. quantities, Revi. Econ. Stud. 41 (1974) 477-491], we analyze the conditions under which this is superior, from an efficiency point of view, to subjecting the whole economy to either of these control mechanisms. The paper addresses a crucial trade-off between two sources of efficiency loss, one due to cost-effectiveness issues and another due to emissions volume. This trade-off determines the optimal size of each sector. It is shown that the size of the taxed sector, at an optimum, increases with the relative steepness of the aggregate marginal abatement cost function.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 56 (2008)
Issue (Month): 2 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622870
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- M. L. Weitzman, 1973.
"Prices vs. Quantities,"
106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Laffont, Jean Jacques, 1977. "More on Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 177-82, February.
- Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997.
"When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets,"
dp-97-18-rev, Resources For the Future.
- Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
- Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
- Weitzman, Martin L, 1978. "Optimal Rewards for Economic Regulation," American Economic Review, American Economic Association, vol. 68(4), pages 683-91, September.
- Louis Kaplow & Steven Shavell, 1997.
"On the Superiority of Corrective Taxes to Quantity Regulation,"
NBER Working Papers
6251, National Bureau of Economic Research, Inc.
- Louis Kaplow & Steven Shavell, 2002. "On the Superiority of Corrective Taxes to Quantity Regulation," American Law and Economics Review, Oxford University Press, vol. 4(1), pages 1-17, January.
- Watson, William D. & Ridker, Ronald G., 1984. "Losses from effluent taxes and quotas under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 11(4), pages 310-326, December.
- Yohe, Gary W., 1981. "Should sliding controls be the next generation of pollution controls?," Journal of Public Economics, Elsevier, vol. 15(2), pages 251-267, April.
- Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
- Ireland, N J, 1977. "Ideal Prices vs. Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 183-86, February.
- Jack Pezzey & Frank Jotzo, 2010.
"Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design,"
Environmental Economics Research Hub Research Reports
1068, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
- Pezzey, John C.V. & Jotzo, Frank, 2010. "Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design," Research Reports 95049, Australian National University, Environmental Economics Research Hub.
- Zhe Li & Shouyong Shi, 2010. "Emission Tax or Standard? The Role of Productivity Dispersion," Working Papers tecipa-409, University of Toronto, Department of Economics.
- Krysiak, Frank C. & Oberauner, Iris Maria, 2010.
"Environmental policy à la carte: Letting firms choose their regulation,"
Journal of Environmental Economics and Management,
Elsevier, vol. 60(3), pages 221-232, November.
- Frank C. Krysiak & Iris Maria Oberauner, 2008. "Environmental Policy à la Carte: Letting Firms Choose their Regulation," Working papers 2008/03, Faculty of Business and Economics - University of Basel.
- Heindl, Peter, 2012. "Mitigating market power under tradeable permits," ZEW Discussion Papers 12-065, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Shouyong Shi & Zhe Li, 2010. "Emission Tax or Standard: The Roles of Productivity Dispersion and Abatement," 2010 Meeting Papers 587, Society for Economic Dynamics.
- Blyth, William & Bunn, Derek & Kettunen, Janne & Wilson, Tom, 2009. "Policy interactions, risk and price formation in carbon markets," Energy Policy, Elsevier, vol. 37(12), pages 5192-5207, December.
- Ambec, Stefan & Coria, Jessica, 2011.
"Prices vs Quantities with Multiple Pollutants,"
Working Papers in Economics
517, University of Gothenburg, Department of Economics.
- Oskar Lecuyer & Philippe Quirion, 2012.
"Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions?,"
- Oskar Lecuyer & Philippe Quirion, 2012. "Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions?," Working Papers 2012.91, Fondazione Eni Enrico Mattei.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.