Emissions Trading: ERCs or Allowances
AbstractThere are two principal choices of the baseline from which emissions trading may take place: 1) emission reduction credits (ERCs) in which the baseline is existing regulations which are often activity-based; and 2) cap-and-trade which specified the total allowable emissions. This paper examines the effects of these two tradable permit systems on marginal and average costs for the firm, using electricity generation as an example. The ERC system subsidises the activity level to which it is tied, failing to incorporate the full cost of external harm into the product price. The cap-and-trade system is more efficient.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number dewees-00-01.
Length: 37 pages
Date of creation: 11 Jul 2000
Date of revision:
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air pollution; emissions trading; allowances; emission reduction credits; cap and trade; electricity generation; externality;
Other versions of this item:
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-AGR-2000-05-30 (Agricultural Economics)
- NEP-ALL-2000-05-30 (All new papers)
- NEP-ENE-2000-05-30 (Energy Economics)
- NEP-ENV-2000-05-30 (Environmental Economics)
- NEP-PBE-2000-05-30 (Public Economics)
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