Allocating Risks in a Domestic Greenhouse Gas Trading System
AbstractAs tradeable permit programmes mature, two inter-related issues are becoming more critical in creating viable responses to a long-term, highly uncertain environmental problem such as climate change. First, we need to update policies in response to new information; and second, we need to design policies so that they can be updated without creating adverse strategic incentives for either government or regulated entities. Consideration of both exogenous risk (uncontrollable) and endogenous risk (concerns about policy credibility) suggests that permits should be auctioned several years in advance of use, and each permit should be defined as a percentage of a possibly varying target. For exogenous risks, this system allows all risk to be pooled and managed as efficiently as possible within the private sector. For endogenous risk, it creates a vested interest that will pressure government to maintain or strengthen targets to offset the obvious pressures to weaken regulation. It also reduces the ability of government to reallocate rents without cost to itself, or to gain revenue by altering targets. In addition, policy should be made as complete and as transparent as possible, and its key elements should be embedded in legislation to limit prospects for capricious changes in the future.
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Bibliographic InfoPaper provided by Motu Economic and Public Policy Research in its series Working Papers with number 03_01.
Length: 12 pages
Date of creation: Mar 2003
Date of revision:
Other versions of this item:
- Suzi Kerr, 2003. "Allocating Risks in a Domestic Greenhouse Gas Trading System," Others 0309003, EconWPA.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
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