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Hybrid carbon incentive mechanisms and political acceptability

  • Herman Vollebergh
  • Jan Vries
  • Paul Koutstaal

This paper analyses how hybrid systems of carbon taxes and tradeable permits optimize some conflicting dimensions of political acceptability related to the design of these instruments. Pure systems like taxes without exemptions or auctioned tradeable permits cause problems for political acceptability in open economies due to high overall costs (abatement cost plus payments on the tax or auctions) for current polluters. Unfortunately, pure systems based on grandfathering of emission rights across the board do not provide a feasible alternative because of monitoring and enforcement problems. In contrast, consciously designed hybrid systems employ grandfathering of emission rights together with either carbon taxes or auctioned carbon permits in order to overcome acceptability problems of pure systems, while leaving incentives to reduce emissions at the margin untouched. Moreover, monitoring and enforcement costs of the hybrid systems are less due to the lower number of participating agents compared with the pure systems, while opportunities for costor burden-sharing exist as well. Copyright Kluwer Academic Publishers 1997

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File URL: http://hdl.handle.net/10.1007/BF02441369
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 9 (1997)
Issue (Month): 1 (January)
Pages: 43-63

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Handle: RePEc:kap:enreec:v:9:y:1997:i:1:p:43-63
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  1. Stephen Smith, 1992. "Taxation and the environment: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 13(4), pages 21-57, January.
  2. Michael Hoel, 1993. "Harmonization of carbon taxes in international climate agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(3), pages 221-231, June.
  3. John Pezzey, 1992. "The Symmetry between Controlling Pollution by Price and Controlling It by Quantity," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 983-91, November.
  4. Thomas A. Barthold, 1994. "Issues in the Design of Environmental Excise Taxes," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 133-151, Winter.
  5. Graciela Chichilnisky & Geoffrey Heal, 1995. "Markets for Tradeable CO2 Emission Quotas Principles and Practice," OECD Economics Department Working Papers 153, OECD Publishing.
  6. Bovenberg, A.L., 1993. "Policy instruments for curbing CO2 emissions : The case of the Netherlands," Other publications TiSEM 2b5c9089-2f6e-4eb8-9eb3-c, Tilburg University, School of Economics and Management.
  7. Zodrow, George R., 1992. "Grandfather rules and the theory of optimal tax reform," Journal of Public Economics, Elsevier, vol. 49(2), pages 163-190, November.
  8. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
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