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

Listed author(s):
  • Yu, Jongmin
  • Mallory, Mindy L.

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0928765514000773
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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 39 (2015)
Issue (Month): C ()
Pages: 16-28

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Handle: RePEc:eee:resene:v:39:y:2015:i:c:p:16-28
DOI: 10.1016/j.reseneeco.2014.11.003
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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