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An optimal hybrid emission control system in a multiple compliance period model

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  • Yu, Jongmin
  • Mallory, Mindy L.

Abstract

We characterize an optimal hybrid policy for pollutant emissions that includes a permit price ceiling and emission cap in a multi-period model. Previous studies have primarily focused on a hybrid policy of emission regulation that included an emission cap and permit price ceiling in a single period model, we extend this literature by developing such an optimal hybrid model in a multi-period framework where banking and borrowing of emission permits is allowed. In our model, we compare the case of a regulator who sets the emission cap and price ceiling to be consistent with a long run emission objective with the case of a regulator who occasionally is motivated to deviate from the optimal long run regulatory policy in order to correct for unexpected but exceptionally high emissions. Using a discrete dynamic programming model with stochastic emissions, we show that the hybrid model gives the regulator a degree of freedom in making an optimal price and quantity choice.

Suggested Citation

  • Yu, Jongmin & Mallory, Mindy L., 2015. "An optimal hybrid emission control system in a multiple compliance period model," Resource and Energy Economics, Elsevier, vol. 39(C), pages 16-28.
  • Handle: RePEc:eee:resene:v:39:y:2015:i:c:p:16-28
    DOI: 10.1016/j.reseneeco.2014.11.003
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cap and trade; Climate change; Emissions tax; Hybrid emission control; Safety valve;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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