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Emissions targets and the real business cycle: Intensity targets versus caps or taxes

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  • Fischer, Carolyn
  • Springborn, Michael

Abstract

For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy on all variables except for the shadow value of the emissions constraint. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 3 ()
Pages: 352-366

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:3:p:352-366

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Emissions tax; Cap-and-trade; Intensity target; Business cycle;

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References

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Citations

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Cited by:
  1. Lintunen , Jussi & Vilmi, Lauri, 2013. "On optimal emission control – Taxes, substitution and business cycles," Research Discussion Papers 24/2013, Bank of Finland.
  2. Valentina Bosetti & Marco Maffezzoli, 2014. "Taxing Carbon under Market Incompleteness," Working Papers 513, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Heutel, Garth, 2011. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Working Papers 11-8, University of North Carolina at Greensboro, Department of Economics.
  4. Stern, David I. & Jotzo, Frank, 2010. "How ambitious are China and India's emissions intensity targets?," Energy Policy, Elsevier, vol. 38(11), pages 6776-6783, November.
  5. Lemoine, Derek, 2013. "Escape from Third-Best: Rating Emissions for Intensity Standards," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161656, Agricultural and Applied Economics Association.
  6. Garth Heutel & Carolyn Fischer, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," NBER Working Papers 18794, National Bureau of Economic Research, Inc.
  7. Traeger, Christian, 2013. "A 4-stated DICE: quantitatively addressing uncertainty effects in climate change," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9034k05t, Department of Agricultural & Resource Economics, UC Berkeley.
  8. Yazid Dissou & Lilia Karnizova, 2012. "Emissions Cap or Emissions Tax? A Multi-sector Business Cycle Analysis," Working Papers 1210E, University of Ottawa, Department of Economics.
  9. John Parsons & Luca Taschini, 2013. "The Role of Stocks and Shocks Concepts in the Debate Over Price Versus Quantity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(1), pages 71-86, May.
  10. Barbara Annicchiarico & Fabio di Dio, 2013. "Environmental Policy and Macroeconomic Dynamics in a New Keynesian Model," CEIS Research Paper 286, Tor Vergata University, CEIS, revised 30 Sep 2013.
  11. Flues, Florens & Löschel, Andreas & Lutz, Benjamin Johannes & Schenker, Oliver, 2013. "Ups and downs: How economic growth affects policy interactions," ZEW Discussion Papers 13-066, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Baran Doda, 2013. "Emissions-GDP Relationship in Times of Growth and Decline," Grantham Research Institute on Climate Change and the Environment Working Papers 116, Grantham Research Institute on Climate Change and the Environment.
  13. Hossa Almutairi & Samir Elhedhli, 2014. "Carbon tax based on the emission factor: a bilevel programming approach," Journal of Global Optimization, Springer, vol. 58(4), pages 795-815, April.
  14. Doda, Baran, 2014. "Evidence on business cycles and CO2 emissions," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 214-227.

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