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Controlling total emissions under uncertainty

Author

Listed:
  • John C. V. Pezzey

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

  • Frank Jotzo

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

Abstract

We compare a tax with thresholds (‘prices’), and tradable permits (‘quantities’), as mechanisms to control total ‘emissions’ (or other inputs or outputs) from heterogeneous parties with uncertainties in emissions, costs and benefits. The advantage of prices over quantities is much smaller than in Weitzman’s (1974) non-tradable model. Steeper marginal benefits no longer necessarily prefer quantities; and under tradable permits, marginal cost uncertainty is an inherent benefit. For global greenhouse gas abatement by 18 regions in 2020, a tax dominates, but by much less than suggested by single-party models, especially when targets are indexed to activity levels. Provided handouts of thresholds and permits are limited, including tax interactions moderately raises the advantages of a tax, and of indexation.

Suggested Citation

  • John C. V. Pezzey & Frank Jotzo, 2007. "Controlling total emissions under uncertainty," Economics and Environment Network Working Papers 0702, Australian National University, Economics and Environment Network.
  • Handle: RePEc:anu:eenwps:0702
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    File URL: http://een.anu.edu.au/download_files/een00702.pdf
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    References listed on IDEAS

    as
    1. Pezzey, John C.V. & Jotzo, Frank & Quiggin, John C., 2008. "Fiddling while carbon burns: why climate policy needs pervasive emission pricing as well as technology promotion," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(1), March.
    2. Frank Jotzo & John C. V. Pezzey, 2006. "A better Kyoto: options for flexible commitments," Economics and Environment Network Working Papers 0610, Australian National University, Economics and Environment Network.
    3. John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
    4. Michael Grubb, Carlo Carraro and John Schellnhuber, 2006. "Technological Change for Atmospheric Stabilization: Introductory Overview to the Innovation Modeling Comparison Project," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 1-16.
    5. Quiggin, John, 2007. "Stern and his critics on discounting and climate change," Risk and Sustainable Management Group Working Papers 152087, University of Queensland, School of Economics.
    6. Sir Ian Byatt & Bob Carter & Ian Castles & Chris de Freitas & Indur M. Goklany & David Henderson & David Holland & Lord Lawson of Blaby & Richard S. Lindzen & Ross McKitrick & Julian Morris & Sir Alan, 2006. "The Stern Review: A Dual Critique," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(4), pages 165-232, October.
    7. Xuedu Lu & Jiahua Pan & Ying Chen, 2006. "Sustaining Economic Growth in China under Energy and Climate Security Constraints," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(6), pages 85-97.
    8. Michael Grubb & Karsten Neuhoff, 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 7-30, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    prices vs. quantities; uncertainty; heterogeneous parties; tax; tradable permits; indexed targets; greenhouse gases;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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