How to Fix the Inefficiency of Global Cap and Trade
AbstractGlobal cap and trade equalizes the price of emissions and leads to efficient abatement across countries, but sets the abatement level inefficiently low. It is set too low, because the global cap is the sum of individual country targets set on the basis of self-interest. The efficiency of a single price does not overcome the inefficiency of the public-goods problem inherent in global cap and trade. Fortunately, other policies lead to more cooperative and, hence, more efficient outcomes. Replacing the national quantity targets of global cap and trade with a global price target improves outcomes. To improve outcomes further, the price target is combined with a Green Fund. As we demonstrate by example, the Green Fund can induce cooperation between rich countries that want a high global price and poor countries that are more concerned with Green-Fund payments.
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Bibliographic InfoPaper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 12cshtf.
Length: 20 pages
Date of creation: 2012
Date of revision: 2012
Publication status: Published in The Economists’ Voice, 9, April 2012
Contact details of provider:
Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu
global warming; climate change; climate treaty; cap and trade; carbon tax; carbon price; public goods;
Other versions of this item:
- Cramton Peter & Stoft Steven, 2012. "How to Fix the Inefficiency of Global Cap and Trade," The Economists' Voice, De Gruyter, vol. 9(1), pages 1-5, April.
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-10-13 (Agricultural Economics)
- NEP-ALL-2012-10-13 (All new papers)
- NEP-ENE-2012-10-13 (Energy Economics)
- NEP-ENV-2012-10-13 (Environmental Economics)
- NEP-RES-2012-10-13 (Resource Economics)
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