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Prices vs. Quantities and the Intertemporal Dynamics of the Climate Rent

  • Matthias Kalkuhl
  • Ottmar Edenhofer

This paper provides a formal survey of price and quantity instruments for mitigating global warming. We explicitly consider policies’ impact on the incentives of resource owners who maximize their profits intertemporally. We focus on the informational and commitment requirements of the regulator. Furthermore, we study the interplay between (private) resource extraction rent and (public) climate rent and ask how property and management of the climate rent can be assigned between regulator and resource sector. There are only two instruments that unburden the regulator from the complex intertemporal management of the climate rent and associated commitment problems: in the cost-benefit world, we derive a stock-dependent tax rule; in the cost-effective (carbon budget) world, only an emissions trading scheme with free banking and borrowing can shift intertemporal timing decisions completely to the market.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-05/cesifo1_wp3044.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3044.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3044
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  1. Kling, Catherine L. & Rubin, Jonathan, 1997. "Bankable Permits for the Control of Environmental Pollution," Staff General Research Papers 1479, Iowa State University, Department of Economics.
  2. Edenhofer, Ottmar & Kalkuhl, Matthias, 2011. "When do increasing carbon taxes accelerate global warming? A note on the green paradox," Energy Policy, Elsevier, vol. 39(4), pages 2208-2212, April.
  3. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
  4. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Paul Leiby & Jonathan Rubin, 2001. "Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(3), pages 229-256, July.
  6. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  7. Farzin, Y. H., 1996. "Optimal pricing of environmental and natural resource use with stock externalities," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 31-57, October.
  8. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, vol. 18(2), pages 115-136, June.
  9. Farzin, Y H, 1992. "The Time Path of Scarcity Rent in the Theory of Exhaustible Resources," Economic Journal, Royal Economic Society, vol. 102(413), pages 813-30, July.
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