Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins
In: The Design and Implementation of U.S. Climate Policy
AbstractThis paper considers the question of under what circumstances a new environmental regulation should âphase inâ gradually over time, rather than being immediately implemented at full force. The paper focuses particularly on climate policy, though its insights are more general. It shows that while adjustment costs provide a strong efficiency argument for phasing in a quantity-based regulation (or allowing intertemporal flexibility that creates the equivalent of a phase-in), this argument does not apply for price-based regulation. Indeed, in many cases, it will be more efficient to do just the opposite, setting an initially very high emissions price that then falls as the policy phases in. This difference in results comes not from any fundamental difference between price and quantity policies: under either policy, the efficient quantity of abatement rises over time, while the efficient price stays constant or even falls. But other considerations, such as distributional concerns or monitoring and enforcement issues, may still argue for a gradual phase-in even for a price-based policy.
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- Roberton C. Williams III, 2010. "Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins," NBER Working Papers 16120, National Bureau of Economic Research, Inc.
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
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