IDEAS home Printed from https://ideas.repec.org/a/adr/anecst/y2017i127p163-201.html
   My bibliography  Save this article

Joint Design of Emission Tax and Trading Systems

Author

Listed:
  • Bernard Caillaud

    ()

  • Gabrielle Demange

    ()

Abstract

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.

Suggested Citation

  • Bernard Caillaud & Gabrielle Demange, 2017. "Joint Design of Emission Tax and Trading Systems," Annals of Economics and Statistics, GENES, issue 127, pages 163-201.
  • Handle: RePEc:adr:anecst:y:2017:i:127:p:163-201
    DOI: 10.15609/annaeconstat2009.127.0163
    as

    Download full text from publisher

    File URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.127.0163
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Wood, Peter J. & Heindl, Peter & Jotzo, Frank & Löschel, Andreas, 2013. "Linking price and quantity pollution controls under uncertainty," ZEW Discussion Papers 13-025, ZEW - Leibniz Centre for European Economic Research.
    3. 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.
    4. Stavins, Robert Norman & Ranson, Matthew, 2012. "Post-Durban Climate Policy Architecture Based on Linkage of Cap-and-Trade Systems," Scholarly Articles 8832405, Harvard Kennedy School of Government.
    5. Jotzo, Frank & Betz, Regina, 2009. "Linking the Australian Emissions Trading Scheme," Research Reports 94814, Australian National University, Environmental Economics Research Hub.
    6. Peter Heindl & Peter J. Wood & Frank Jotzo, 2014. "Combining International Cap-and-Trade with National Carbon Taxes," CCEP Working Papers 1418, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    7. Ambec, Stefan & Coria, Jessica, 2013. "Prices vs quantities with multiple pollutants," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 123-140.
    8. Andreas Tuerk & Michael Mehling & Christian Flachsland & Wolfgang Sterk, 2009. "Linking carbon markets: concepts, case studies and pathways," Climate Policy, Taylor & Francis Journals, vol. 9(4), pages 341-357, July.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, December.
    15. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ambec, Stefan & Coria, Jessica, 2019. "The informational value of environmental taxes," Working Papers in Economics 774, University of Gothenburg, Department of Economics.
    2. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    3. Baran Doda, Simon Quemin, Luca Taschini, 2017. "A theory of gains from trade in multilaterally linked ETSs," GRI Working Papers 275, Grantham Research Institute on Climate Change and the Environment.
    4. Doda, Baran & Quemin, Simon & Taschini, Luca, 2019. "Linking permit markets multilaterally," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    5. Guy Meunier, 2015. "Prices vs. quantities in presence of a second, unpriced, externality," Working Papers hal-01242040, HAL.
    6. Baran Doda & Luca Taschini, 2017. "Carbon Dating: When Is It Beneficial to Link ETSs?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(3), pages 701-730.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    2. Doda, Baran & Quemin, Simon & Taschini, Luca, 2019. "Linking permit markets multilaterally," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    3. Mehling, Michael A. & Metcalf, Gilbert E. & Stavins, Robert N., 2017. "Linking Heterogeneous Climate Policies (Consistent with the Paris Agreement)," Working Paper Series rwp17-042, Harvard University, John F. Kennedy School of Government.
    4. Elisabetta Cornago & Renaud Foucart, 2014. "Instrument Choice and Cost Uncertainty in the Electricity Market," Working Papers ECARES ECARES 2014-13, ULB -- Universite Libre de Bruxelles.
    5. Matthew Ranson & Robert N. Stavins, 2016. "Linkage of greenhouse gas emissions trading systems: learning from experience," Climate Policy, Taylor & Francis Journals, vol. 16(3), pages 284-300, April.
    6. Gustav Engström & Johan Gars & Niko Jaakkola & Therese Lindahl & Daniel Spiro & Arthur A. van Benthem, 2020. "What Policies Address Both the Coronavirus Crisis and the Climate Crisis?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 789-810, August.
    7. Bodansky, Daniel M. & Hoedl, Seth A. & Metcalf, Gilbert E. & Stavins, Robert N., "undated". "Facilitating Linkage of Heterogeneous Regional, National, and Sub-National Climate Policies Through a Future International Agreement," Climate Change and Sustainable Development 202114, Fondazione Eni Enrico Mattei (FEEM).
    8. Peter Heindl & Peter J. Wood & Frank Jotzo, 2014. "Combining International Cap-and-Trade with National Carbon Taxes," CCEP Working Papers 1418, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    9. Bandyopadhyay, Gopal & Bagheri, Fathollah & Mann, Michael, 2007. "Reduction of fossil fuel emissions in the USA: A holistic approach towards policy formulation," Energy Policy, Elsevier, vol. 35(2), pages 950-965, February.
    10. Blyth, William & Bunn, Derek & Kettunen, Janne & Wilson, Tom, 2009. "Policy interactions, risk and price formation in carbon markets," Energy Policy, Elsevier, vol. 37(12), pages 5192-5207, December.
    11. Edilio Valentini & Paolo Vitale, 2019. "Optimal Climate Policy for a Pessimistic Social Planner," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(2), pages 411-443, February.
    12. Roger Fouquet, 2012. "Economics of Energy and Climate Change: Origins, Developments and Growth," Working Papers 2012-08, BC3.
    13. Svetlana Maslyuk & Dinusha Dharmaratna, 2011. "Comparative analysis of the existing and proposed ETS," Monash Economics Working Papers 15-11, Monash University, Department of Economics.
    14. Ian Parry, 2013. "Fiscal instruments for climate finance," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 16, pages 377-402, Edward Elgar Publishing.
    15. Revesz, Richard & Stavins, Robert, 2004. "Environmental Law and Policy," Working Paper Series rwp04-023, Harvard University, John F. Kennedy School of Government.
    16. Caroline Löffler & Harald Hecking, 2017. "Greenhouse Gas Abatement Cost Curves of the Residential Heating Market: A Microeconomic Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 915-947, December.
    17. Barrage, Lint, 2018. "Be careful what you calibrate for: Social discounting in general equilibrium," Journal of Public Economics, Elsevier, vol. 160(C), pages 33-49.
    18. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "The Effect of Allowance Allocation on the Cost of Carbon Emission Trading," Discussion Papers dp-01-30-, Resources For the Future.
    19. William Nordhaus, 2014. "Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 000.
    20. Itkonen, Juha, 2017. "Efficiency and dependency in a network of linked permit markets," Research Discussion Papers 20/2017, Bank of Finland.

    More about this item

    Keywords

    Climate Policies; Cap-and-Trade Mechanisms; Emission Tax; Uncertainty;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:2017:i:127:p:163-201. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Secretariat General) or (Laurent Linnemer). General contact details of provider: https://edirc.repec.org/data/ensaefr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.