IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

The bears are right: Why cap-and-trade yields greater emission reductions than expected, and what that means for climate policy

Listed author(s):
  • Endre Tvinnereim

    ()

Registered author(s):

    Cap-and-trade, a regulatory instrument widely used to constrain greenhouse gas and other pollution, has recently been criticized for producing only small amounts of intended emission reductions. This paper looks at the empirical record of cap-and-trade since the beginning in 1995, and shows that emission targets have almost always been easier and cheaper to reach than expected. The five main reasons are generous targets, changes in economic output, fuel price movements, innovation, and complementary emission reduction policies. Overall, this failure to predict mitigation potentials may relate to a psychological “end of history bias,” whereby policymakers, industry, and analysts think that less change will happen in the future than has demonstrably happened in the past. Consequently, more abatement is possible and at lower costs than generally thought, rendering the prices of emission permits hard to predict. For climate research, the findings imply that emission scenarios assuming ever-increasing pollution prices may benefit from integrating recent experience with cap-and-trade regulations. In policy terms, mechanisms such as floor prices need to be considered to guarantee emission reductions under uncertainty. Copyright The Author(s) 2014

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://hdl.handle.net/10.1007/s10584-014-1282-1
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Springer in its journal Climatic Change.

    Volume (Year): 127 (2014)
    Issue (Month): 3 (December)
    Pages: 447-461

    as
    in new window

    Handle: RePEc:spr:climat:v:127:y:2014:i:3:p:447-461
    DOI: 10.1007/s10584-014-1282-1
    Contact details of provider: Web page: http://www.springer.com

    Order Information: Web: http://www.springer.com/economics/journal/10584

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Tim Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2013. "Assessing the effectiveness of the EU Emissions Trading System," GRI Working Papers 106, Grantham Research Institute on Climate Change and the Environment.
    2. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
    3. Murray, Brian C. & Maniloff, Peter T., 2015. "Why have greenhouse emissions in RGGI states declined? An econometric attribution to economic, energy market, and policy factors," Energy Economics, Elsevier, vol. 51(C), pages 581-589.
    4. Ellerman,A. Denny & Convery,Frank J. & de Perthuis,Christian, 2010. "Pricing Carbon," Cambridge Books, Cambridge University Press, number 9780521196475, March.
    5. Matthew Paterson, 2012. "Who and what are carbon markets for? Politics and the development of climate policy," Climate Policy, Taylor & Francis Journals, vol. 12(1), pages 82-97, January.
    6. Richard Schmalensee & Robert N. Stavins, 2013. "The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 103-122, Winter.
    7. Elmar Kriegler & John Weyant & Geoffrey Blanford & Volker Krey & Leon Clarke & Jae Edmonds & Allen Fawcett & Gunnar Luderer & Keywan Riahi & Richard Richels & Steven Rose & Massimo Tavoni & Detlef Vuu, 2014. "The role of technology for achieving climate policy objectives: overview of the EMF 27 study on global technology and climate policy strategies," Climatic Change, Springer, vol. 123(3), pages 353-367, April.
    8. Enevoldsen, Martin K. & Ryelund, Anders V. & Andersen, Mikael Skou, 2007. "Decoupling of industrial energy consumption and CO2-emissions in energy-intensive industries in Scandinavia," Energy Economics, Elsevier, vol. 29(4), pages 665-692, July.
    9. Lawrence H. Goulder, 2013. "Markets for Pollution Allowances: What Are the (New) Lessons?," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 87-102, Winter.
    10. Sven Rudolph & Takeshi Kawakatsu, 2012. "Tokyo’s Greenhouse Gas Emissions Trading Scheme: A Model for Sustainable Megacity Carbon Markets?," MAGKS Papers on Economics 201225, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, March.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, October.
    12. repec:dau:papers:123456789/10174 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:spr:climat:v:127:y:2014:i:3:p:447-461. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

    or (Rebekah McClure)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.