Optimal intensity targets for emissions trading under uncertainty (now replaced by EEN0605)
Uncertainty can hamper the stringency of commitments under cap and trade schemes. We assess how well intensity targets, where countries' permit allocations are indexed to future realised GDP, can cope with uncertainties in a post-Kyoto international greenhouse emissions trading scheme. We present some empirical foundations for intensity targets and derive a simple rule for the optimal degree of indexation to GDP. Using an 18-region simulation model of a 2020 global cap-and-trade treaty under multiple uncertainties and endogenous commitments, we estimate that optimal intensity targets could achieve global abatement as much as 20 per cent higher than under absolute targets, and even greater increases in welfare measures. The optimal degree of indexation to GDP would vary greatly between countries, including super-indexation in some advanced countries, and partial indexation for most developing countries. Standard intensity targets (with one-toone indexation) would also improve the overall outcome, but to a lesser degree and not in all cases. Although target indexation is no magic wand for a future global climate treaty, gains from reduced cost uncertainty might justify increased complexity, framing issues and other potential downsides of intensity targets.
|Date of creation:||Jun 2005|
|Contact details of provider:|| Web page: http://een.anu.edu.au/|
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.:
- Carolyn Fischer, 2003.
"Combining rate-based and cap-and-trade emissions policies,"
Taylor & Francis Journals, vol. 3(sup2), pages 89-103, December.
- Fischer, Carolyn, 2003. "Combining Rate-Based and Cap-and-Trade Emissions Policies," Discussion Papers dp-03-32, Resources For the Future.
- Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-894, Supplemen.
- Böhringer, Christoph, 2003. "The Kyoto Protocol: A Review and Perspectives," ZEW Discussion Papers 03-61, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
- Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
- Martin L. Weitzman, 1998.
Harvard Institute of Economic Research Working Papers
1843, Harvard - Institute of Economic Research.
- Stavins, Robert, 2000.
"Experience with Market-Based Environmental Policy Instruments,"
Working Paper Series
rwp00-004, Harvard University, John F. Kennedy School of Government.
- Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435 Elsevier.
- Stavins, Robert, 2001. "Experience with Market-Based Environmental Policy Instruments," Discussion Papers dp-01-58, Resources For the Future.
- Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January.
- Adam Rose & Brandt Stevens & Jae Edmonds & Marshall Wise, 1998. "International Equity and Differentiation in Global Warming Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(1), pages 25-51, July.
- M. L. Weitzman, 1973.
"Prices vs. Quantities,"
106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Toman, Michael, 2003. "Economic Analysis and the Formulation of U.S. Climate Policy," Discussion Papers dp-02-59, Resources For the Future.
- Philippe Quirion, 2004.
"Prices versus Quantities in a Second-Best Setting,"
Environmental & Resource Economics,
Springer;European Association of Environmental and Resource Economists, vol. 29(3), pages 337-360, November.
- Carraro, Carlo & Siniscalco, Domenico, 1991.
"Strategies for the International Protection of the Environment,"
CEPR Discussion Papers
568, C.E.P.R. Discussion Papers.
- Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
- Pizer, William, 2005. "The Case for Intensity Targets," Discussion Papers dp-05-02, Resources For the Future.
- GERMAIN, Marc & VAN STEENBERGHE, Vincent, 2001. "Constraining equitable allocations of tradable greenhouse gases emission quotas by acceptability," CORE Discussion Papers 2001005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Alfred Endres & Michael Finus, 2002. "Quotas May Beat Taxes in a Global Emission Game," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(6), pages 687-707, November.
- John C. V. Pezzey & Frank Jotzo, 2006. "Mechanisms for Abating Global Emissions Under Uncertainty," Economics and Environment Network Working Papers 0604, Australian National University, Economics and Environment Network.
- Barros, Vincente & Grand, Mariana Conte, 2002. "Implications of a dynamic target of greenhouse gases emission reduction: the case of Argentina," Environment and Development Economics, Cambridge University Press, vol. 7(03), pages 547-569, July.
- Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
- A. Denny Ellerman & Ian Sue Wing, 2003. "Absolute versus intensity-based emission caps," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 7-20, December.
- Peter Bohm & Björn Carlén, 2002. "A Cost-effective Approach to Attracting Low-income Countries to International Emissions Trading: Theory and Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(2), pages 187-211, October.
- Michael Finus & Juan-Carlos Altamirano-Cabrera & Ekko Ierland, 2005. "The effect of membership rules and voting schemes on the success of international climate agreements," Public Choice, Springer, vol. 125(1), pages 95-127, July.
- Kolstad, Charles D., 2005. "The simple analytics of greenhouse gas emission intensity reduction targets," Energy Policy, Elsevier, vol. 33(17), pages 2231-2236, November.
When requesting a correction, please mention this item's handle: RePEc:anu:eenwps:0504. 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: (Jack Pezzey)
If references are entirely missing, you can add them using this form.