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Combining rate-based and cap-and-trade emissions policies

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  • Carolyn Fischer

Abstract

Rate-based emissions policies (like tradable performance standards, TPS) fix average emissions intensity, while cap-and-trade (CAT) policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider several policy options to offset the expansion, including a tax, an "exchange rate" to adjust for relative permit values, output-based allocation (OBA) for the rate-based sector, and tightening the cap. A range of combinations of tighter allocations could improve situations in both sectors with trade while holding emissions constant.© 2003 Elsevier Ltd. All rights reserved.

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  • Carolyn Fischer, 2003. "Combining rate-based and cap-and-trade emissions policies," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 89-103, December.
    • Handle: RePEc:taf:tcpoxx:v:3:y:2003:i:sup2:p:s89-s103
    DOI: 10.1016/j.clipol.2003.09.015
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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