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Cost Containment under Cap and Trade: A Review of the Literature

Author

Listed:
  • Fell, Harrison
  • Moore, Eric
  • Morgenstern, Richard D.

Abstract

Cap and trade programs have been a commonly proposed method to regulate emissions of various pollutants. As many countries move forward with plans to regulate CO 2 emissions, concerns over containing the costs of such policies often arise given the relatively large scope of the programs. We review three cost containment mechanisms most commonly employed in existing cap and trade policies and/or discussed in the literature: banking and borrowing, hybrid policies, and emission offsets. For each of these mechanisms we discuss the theoretical basis for the policy, potential unintended consequences and, where applicable, the effectiveness of the policy as it has been used in practice.

Suggested Citation

  • Fell, Harrison & Moore, Eric & Morgenstern, Richard D., 2011. "Cost Containment under Cap and Trade: A Review of the Literature," International Review of Environmental and Resource Economics, now publishers, vol. 5(4), pages 285-307, September.
    • Handle: RePEc:now:jirere:101.00000044
    DOI: 10.1561/101.00000044
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    Citations

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    Cited by:

    1. Stranlund, John K. & Moffitt, L. Joe, 2014. "Enforcement and price controls in emissions trading," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 20-38.
    2. Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2014. "Price controls and banking in emissions trading: An experimental evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 71-86.
    3. Anne Schopp & Karsten Neuhoff, 2013. "The Role of Hedging in Carbon Markets," Discussion Papers of DIW Berlin 1271, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Cost containment; Cap and trade; Offsets; Hybrid policies; Allowance banking;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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