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Carbon markets in space and time

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  • Samuel Fankhauser
  • Cameron Hepburn
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    Abstract

    This paper analyses the design of carbon markets in time (intertemporally) and space (geographically) from first principles, starting initially with a relatively clean slate and asking what an optimal global carbon market would look like by around 2030. Our focus is on firmlevel trading systems, although much of what we say would also apply to government-level trading (e.g., AAU trading under the Kyoto Protocol). We examine the “first principles” of design to maximise flexibility and to minimise costs, consider temporal design including banking and borrowing and other mechanisms to provide greater carbon price predictability and credibility over time, and consider spatial elements, examining the key design issues in linking national and regional carbon markets together to create a global carbon market.

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    File URL: http://eprints.lse.ac.uk/37606/
    File Function: Open access version.
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 37606.

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    Length: 35 pages
    Date of creation: 26 Jul 2009
    Date of revision:
    Handle: RePEc:ehl:lserod:37606

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    1. Richard Newell & William Pizer & Jiangfeng Zhang, 2005. "Managing Permit Markets to Stabilize Prices," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, 06.
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    4. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
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    6. Pizer, William & Newell, Richard, 1998. "Regulating Stock Externalities Under Uncertainty," Discussion Papers dp-99-10-rev, Resources For the Future.
    7. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, October.
    8. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    9. Ben Irons & Cameron Hepburn, 2007. "Regret Theory and the Tyranny of Choice," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 191-203, 06.
    10. David S. Jacks & Kevin H. O'Rourke & Jeffrey G. Williamson, 2009. "Commodity Price Volatility and World Market Integration since 1700," NBER Working Papers 14748, National Bureau of Economic Research, Inc.
    11. Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
    12. Warwick J. McKibbin & Peter J. Wilcoxen, 2003. "Estimates of the Costs of Kyoto-Marrakesh versus the McKibbin-Wilcoxen Blueprint," Economics and Environment Network Working Papers 0305, Australian National University, Economics and Environment Network.
    13. Murray, Brian C. & Newell, Richard G. & Pizer, William A., 2008. "Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade," Discussion Papers dp-08-24, Resources For the Future.
    14. Karan Capoor & Philippe Ambrosi, . "State and Trends of the Carbon Market 2008," World Bank Other Operational Studies 13405, The World Bank.
    15. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
    16. Warwick J. McKibbin & Peter J. Wilcoxen, 2002. "The Role of Economics in Climate Change Policy," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 107-129, Spring.
    17. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
    18. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics 0644, Faculty of Economics, University of Cambridge.
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    Cited by:
    1. Samuel Fankhauser & Nat Martin & Stephen Prichard, 2009. "The economics of the CDM levy: revenue potential, tax incidence and distortionary effects," LSE Research Online Documents on Economics 37604, London School of Economics and Political Science, LSE Library.

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