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Can uncertainty justify overlapping policy instruments to mitigate emissions?

  • Lecuyer, Oskar
  • Quirion, Philippe

This article constitutes a new contribution to the analysis of overlapping instruments to cover the same emission sources. Using both an analytical and a numerical model, we find that if there is a risk that the carbon price drops to zero and if the political unavailability of a CO2 tax (at least in the European Union) is taken into account, it can be socially beneficial to implement an additional instrument encouraging the reduction of emissions, for instance a renewable energy subsidy. Our analysis has both a practical and a theoretical purpose. It aims at giving economic insight to policymakers in a context of increased uncertainty concerning the future stringency of the European Emission Trading Scheme. It also gives another rationale for the use of several instruments to cover the same emission sources, and shows the importance of accounting for corner solutions in the definition of the optimal policy mix.

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Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 93 (2013)
Issue (Month): C ()
Pages: 177-191

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Handle: RePEc:eee:ecolec:v:93:y:2013:i:c:p:177-191
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolecon

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