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A Note on Correlated Uncertainty and Hybrid Environmental Policies

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  • John Stranlund

Abstract

This note examines the effects of correlated uncertainty between abatement costs and pollution damage on hybrid emissions control policies. In particular, I show how correlated uncertainty affects the structure and performance of control policies that combine permit trading with price controls. Moreover, I show how correlated uncertainty affects the choice between a simple emissions tax versus a hybrid policy. Under correlated uncertainty, constant marginal damage is no longer necessary or sufficient for a tax to be an optimal policy. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • John Stranlund, 2015. "A Note on Correlated Uncertainty and Hybrid Environmental Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(4), pages 463-476, August.
    • Handle: RePEc:kap:enreec:v:61:y:2015:i:4:p:463-476
    DOI: 10.1007/s10640-014-9802-z
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    More about this item

    Keywords

    Cap-and-trade; Correlated uncertainty; Emissions trading; Emissions taxes; Hybrid policies; Price controls; H23; L51; Q58;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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