Price Floors in Emissions Trading to Reduce Policy Related Investment Risks: an Australian View
AbstractThe merits of floor prices in emissions trading schemes (ETS) depend on the problem addressed. Traditional hybrid approaches emphasise automatic response to lower than anticipated abatement costs, but we find adjusting emissions targets over time is the better way to deal with this in the context of climate policy. We find, however, that a price floor is well suited to addressing policy generated carbon price risk as domestic and international policy frameworks mature, reducing the risk of unintended low carbon prices. Reducing such downside risk can encourage cost effective investment in low-emissions assets that might otherwise be precluded by perceived policy risks, even if the price floor is never actually triggered. In AustraliaÃ•s planned ETS, a price floor could support investments that lower the national emissions trajectory, and boost policy stability and credibility. A price floor in operation can increase the static costs of achieving a given emissions target, but reduce economic costs over time. Assessment of implementation options suggests a domestic reserve price for auctioned permits along with a periodically adjusted fee on the conversion of international permits for use in the domestic ETS. This approach minimises administrative complexity and avoids arbitrary interventions in carbon markets.
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.
Bibliographic InfoPaper provided by Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University in its series CCEP Working Papers with number 1105.
Date of creation: May 2011
Date of revision:
Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: http://ccep.anu.edu.au/
More information through EDIRC
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
- NEP-ENE-2011-06-11 (Energy Economics)
- NEP-ENV-2011-06-11 (Environmental Economics)
- NEP-REG-2011-06-11 (Regulation)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- How low can you go? A model for setting and increasing a carbon price
by Frank Jotzo, Director, Centre for Climate Economics and Policy at Australian National University in The Conversation on 2011-06-03 04:31:41
- Carbon price floor axed, but EU market links a good substitute
by Frank Jotzo, Director, Centre for Climate Economics and Policy at Australian National University in The Conversation on 2012-08-28 05:33:27
- Price Floors in Emissions Trading to Reduce Policy Related Investment Risks: an Australian View
by David Stern in Stochastic Trend on 2011-06-01 22:32:00
- Frank Jotzo, 2013. "Emissions trading in China: Principles, design options and lessons from international practice," CCEP Working Papers 1303, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Stern).
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.