IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimal intensity targets for emissions trading under uncertainty (now replaced by EEN0605)

  • Frank Jotzo

    ()

    (Australian National University, Research School of Pacific and Asian Studies)

  • John C. V. Pezzey

    ()

    (Australian National University,Centre for Resource and Environmental Studies)

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.

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://een.anu.edu.au/download_files/een0504.pdf
Download Restriction: no

Paper provided by Australian National University, Economics and Environment Network in its series Economics and Environment Network Working Papers with number 0504.

as
in new window

Length: 43 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:anu:eenwps:0504
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.:

as in new window
  1. Peter Bohm & Björn Carlén, 2002. "A Cost-effective Approach to Attracting Low-income Countries to International Emissions Trading: Theory and Experiments," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(2), pages 187-211, October.
  2. 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.
  3. 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.
  4. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Philippe Quirion, 2004. "Prices versus Quantities in a Second-Best Setting," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 29(3), pages 337-359, November.
  6. Alfred Endres & Michael Finus, 2002. "Quotas May Beat Taxes in a Global Emission Game," International Tax and Public Finance, Springer, vol. 9(6), pages 687-707, November.
  7. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January.
  8. 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.
  9. Toman, Michael, 2003. "Economic Analysis and the Formulation of U.S. Climate Policy," Discussion Papers dp-02-59, Resources For the Future.
  10. Pizer, William, 2005. "The Case for Intensity Targets," Discussion Papers dp-05-02, Resources For the Future.
  11. Fischer, Carolyn, 2003. "Combining Rate-Based and Cap-and-Trade Emissions Policies," Discussion Papers dp-03-32, Resources For the Future.
  12. A. Denny Ellerman & Ian Sue Wing, 2003. "Absolute versus intensity-based emission caps," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages S7-S20, December.
  13. 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 741-65, September.
  14. 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.
  15. Martin L. Weitzman, 1998. "Gamma Discounting," Harvard Institute of Economic Research Working Papers 1843, Harvard - Institute of Economic Research.
  16. 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).
  17. Kolstad, Charles D., 2005. "The simple analytics of greenhouse gas emission intensity reduction targets," Energy Policy, Elsevier, vol. 33(17), pages 2231-2236, November.
  18. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
  19. Adam Rose & Brandt Stevens & Jae Edmonds & Marshall Wise, 1998. "International Equity and Differentiation in Global Warming Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(1), pages 25-51, July.
  20. Stavins, Robert, 2000. "Experience with Market-Based Environmental Policy Instruments," Working Paper Series rwp00-004, Harvard University, John F. Kennedy School of Government.
  21. 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.
  22. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
  23. 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.
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: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 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.