Optimal Intensity Targets for Greenhouse Gas Emissions Trading Under Uncertainty
Uncertainty is an obstacle for commitments under cap and trade schemes for emission permits. We assess how well intensity targets, where each country's permit allocation is indexed to its future realised GDP, can cope with uncertainties in international greenhouse emissions trading. 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 cooperative, global cap-and-trade treaty in 2020 under multiple uncertainties and endogenous commitments, we show that optimal intensity targets could reduce the cost of uncertainty and achieve significant increases in global abatement. The optimal degree of indexation to GDP would vary greatly between countries, including superindexation in some advanced countries, and partial indexation for most developing countries. Standard intensity targets (with one-to-one indexation) would also improve the overall outcome, but to a lesser degree and not in all individual cases. Although target indexation is no magic wand for a future global climate treaty, gains from reduced cost uncertainty and the potential for more stringent environmental commitments could justify the increased complexity and other potential downsides of intensity targets.
|Date of creation:||Jan 2007|
|Contact details of provider:|| Web page: http://een.anu.edu.au/|
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.:
- Martin L. Weitzman, 1974.
"Prices vs. Quantities,"
Review of Economic Studies,
Oxford University Press, vol. 41(4), pages 477-491.
- M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Rehdanz, Katrin & Tol, Richard S.J., 2005. "Unilateral regulation of bilateral trade in greenhouse gas emission permits," Ecological Economics, Elsevier, vol. 54(4), pages 397-416, September.
- 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.
- 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.
- Webster, Mort & Cho, Cheol-Hung, 2006. "Analysis of variability and correlation in long-term economic growth rates," Energy Economics, Elsevier, vol. 28(5-6), pages 653-666, November.
- Dinda, Soumyananda, 2004. "Environmental Kuznets Curve Hypothesis: A Survey," Ecological Economics, Elsevier, vol. 49(4), pages 431-455, August.
- 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.
- Frank Jotzo, 2006. "Quantifying uncertainties for emission targets," Economics and Environment Network Working Papers 0603, Australian National University, Economics and Environment Network.
- Galeotti, Marzio & Lanza, Alessandro & Pauli, Francesco, 2006. "Reassessing the environmental Kuznets curve for CO2 emissions: A robustness exercise," Ecological Economics, Elsevier, vol. 57(1), pages 152-163, April. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:anu:eenwps:0701. 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.