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Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions?

Author

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  • Oskar Lecuyer
  • Philippe Quirion

Abstract

This article constitutes a new contribution to the analysis of overlapping instruments to cover the same emission sources. Using both an analytical and a numerical model, we find that when the risk that the CO2 price drops to zero and the political unavailability of a CO2 tax (at least in the European Union) are taken into account, it can be socially beneficial to implement an additional instrument encouraging the reduction of emissions, for instance a renewable energy subsidy. Our analysis has both a practical and a theoretical purpose. It aims at giving economic insight to policymakers in a context of increased uncertainty concerning the future stringency of the European Emission Trading Scheme. It also gives another rationale for the use of several instruments to cover the same emission sources, and shows the importance of accounting for corner solutions in the definition of the optimal policy mix

Suggested Citation

  • Oskar Lecuyer & Philippe Quirion, 2013. "Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions?," Working Papers 1301, Chaire Economie du climat.
  • Handle: RePEc:cec:wpaper:1301
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    References listed on IDEAS

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    1. repec:eee:enepol:v:109:y:2017:i:c:p:685-693 is not listed on IDEAS
    2. repec:hal:ciredw:hal-00916328 is not listed on IDEAS
    3. Guo, Jian-Xin & Zhu, Lei & Fan, Ying, 2016. "Emission path planning based on dynamic abatement cost curve," European Journal of Operational Research, Elsevier, vol. 255(3), pages 996-1013.
    4. repec:hal:wpaper:hal-00916328 is not listed on IDEAS
    5. Petr Cermak & Jarmila Zimmermannova & Jan Lavrincik & Miroslav Pokorny & Jiri Martinu, 2015. "The Broker Simulation Model in the Emission Allowances Trading Area," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 80-95.
    6. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    7. Pegels, Anna & Lütkenhorst, Wilfried, 2014. "Is Germany׳s energy transition a case of successful green industrial policy? Contrasting wind and solar PV," Energy Policy, Elsevier, vol. 74(C), pages 522-534.
    8. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," Working Papers hal-00866408, HAL.
    9. Vogt-Schilb, Adrien & Hallegatte, Stéphane, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Energy Policy, Elsevier, vol. 66(C), pages 645-653.
    10. Fagiani, Riccardo & Richstein, Jörn C. & Hakvoort, Rudi & De Vries, Laurens, 2014. "The dynamic impact of carbon reduction and renewable support policies on the electricity sector," Utilities Policy, Elsevier, vol. 28(C), pages 28-41.
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    13. repec:eee:enepol:v:111:y:2017:i:c:p:268-280 is not listed on IDEAS
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    17. repec:eee:rensus:v:74:y:2017:i:c:p:824-834 is not listed on IDEAS
    18. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," CIRED Working Papers hal-00866408, HAL.
    19. Mathy, Sandrine & Fink, Meike & Bibas, Ruben, 2015. "Rethinking the role of scenarios: Participatory scripting of low-carbon scenarios for France," Energy Policy, Elsevier, vol. 77(C), pages 176-190.
    20. repec:era:chaptr:2015-rpr-23-4 is not listed on IDEAS
    21. repec:eee:eneeco:v:63:y:2017:i:c:p:332-347 is not listed on IDEAS
    22. Baran Doda & Simon Quemin, 2018. "Linking Permit Markets Multilaterally," Working Papers 1804, Chaire Economie du climat.

    More about this item

    Keywords

    Uncertainty; Policy overlapping; Mitigation policy; Energy policy; EU-ETS; Renewable energy; Corner solutions; Nil CO2 price; European Union;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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