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Joint Design of Emission Tax and Trading Systems

Listed author(s):
  • Bernard Caillaud

    ()

  • Gabrielle Demange

    ()

This paper analyzes the joint design of fiscal and cap-and-trade instruments in climate policies under uncertainty. Whether the optimal mechanism is a mixed policy (with some firms subject to a tax and others to a cap-and-trade) or a uniform one (with all firms subject to the same instrument) depends on parameters reflecting preferences, production, and, most importantly, the stochastic structure of the shocks affecting the economy. This framework is then used to address the issue of the non-cooperative design of climate regulation systems in various areas worldwide under uncertainty. We characterize the resulting inefficiency, show how the Pareto argument in favor of merging ETS of different regions is reinforced under uncertainty, and discuss the non-cooperative design of mixed systems.

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File URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.127.0163
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Article provided by GENES in its journal Annals Of Economics and Statistics.

Volume (Year): (2017)
Issue (Month): 127 ()
Pages: 163-201

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Handle: RePEc:adr:anecst:y:2017:i:127:p:163-201
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  1. Wood, Peter J. & Heindl, Peter & Jotzo, Frank & Löschel, Andreas, 2013. "Linking price and quantity pollution controls under uncertainty," ZEW Discussion Papers 13-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Jotzo, Frank & Betz, Regina, 2009. "Linking the Australian Emissions Trading Scheme," Research Reports 94814, Australian National University, Environmental Economics Research Hub.
  3. Matthew Ranson & Robert N. Stavins, 2012. "Post-Durban Climate Policy Architecture Based on Linkage of Cap-and-Trade Systems," NBER Working Papers 18140, National Bureau of Economic Research, Inc.
  4. Ambec, Stefan & Coria, Jessica, 2013. "Prices vs quantities with multiple pollutants," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 123-140.
  5. Christian Flachsland & Robert Marschinski & Ottmar Edenhofer, 2009. "To link or not to link: benefits and disadvantages of linking cap-and-trade systems," Climate Policy, Taylor & Francis Journals, vol. 9(4), pages 358-372, July.
  6. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  7. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
  8. Heindl, Peter & Wood, Peter J. & Jotzo, Frank, 2014. "Combining international cap-and-trade with national carbon taxes," ZEW Discussion Papers 14-086, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Gilbert E. Metcalf & David Weisbach, 2012. "Linking Policies When Tastes Differ: Global Climate Policy in a Heterogeneous World," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 6(1), pages 110-129.
  10. Mandell, Svante, 2008. "Optimal mix of emissions taxes and cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 131-140, September.
  11. Martin, Ralf & de Preux, Laure B. & Wagner, Ulrich J., 2014. "The impact of a carbon tax on manufacturing: Evidence from microdata," Journal of Public Economics, Elsevier, vol. 117(C), pages 1-14.
  12. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
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