Does uncertainty justify intensity emission caps?
Environmental policies often set ‘‘relative'' or ‘‘intensity'' emission caps, i.e. emission limits proportional to the polluting firm's output. One of the arguments put forth in favour of relative caps is based on the uncertainty on business-as-usual output: if the firm's production level is higher than expected, so will be business-as-usual emissions, hence reaching a given level of emissions will be more costly than expected.As a consequence, it is argued, a higher emission level should be allowed if the production level is moreimportant than expected. We assess this argument with a stochastic analytical model featuring two randomvariables: the business-as-usual emission level, proportional to output, and the slope of the marginalabatement cost curve.We compare the relative cap to an absolute cap and to a price instrument, in terms ofwelfare impact. It turns out that in most plausible cases, either a price instrument or an absolute cap yields ahigher expected welfare than a relative cap. Quantitatively, the difference in expected welfare is typically very small between the absolute and the relative cap but may be significant between the relative cap and the price instrument.
|Date of creation:||Nov 2005|
|Publication status:||Published in Resource and Energy Economics, Elsevier, 2005, 27 (4), pp.343-353. <10.1016/j.reseneeco.2005.05.002>|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00007162|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
- M. L. Weitzman, 1973.
"Prices vs. Quantities,"
106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
- Catherine Boemare & Philippe Quirion, 2002.
"Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences,"
- Boemare, Catherine & Quirion, Philippe, 2002. "Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences," Ecological Economics, Elsevier, vol. 43(2-3), pages 213-230, December.
- Catherine Boemare & Philippe Quirion & Steve Sorrell, 2003.
"The evolution of emissions trading in the E.U : tensions between national trading schemes and the proposed EU directive,"
- Catherine Boemare & Philippe Quirion & Steve Sorrell, 2003. "The evolution of emissions trading in the EU: tensions between national trading schemes and the proposed EU directive," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 105-124, December.
- Philippe Quirion & Catherine Boemare & Steven Sorrell, 2003. "The evolution of emissions trading in the E.U: Tensions between national trading schemes and the proposed E.U. directive," Post-Print hal-00119455, HAL.
- Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August.
- Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
- Hoel, Michael & Karp, Larry, 2000.
"Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt9v86p5s7, Department of Agricultural & Resource Economics, UC Berkeley.
- Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
- Michael Hoel & Larry Karp, 1999. "Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty," Working Papers 1999.15, Fondazione Eni Enrico Mattei.
- Udo Ebert, 1998. "Relative standards: A positive and normative analysis," Journal of Economics, Springer, vol. 67(1), pages 17-38, February.
- Kolstad, Charles D., 2005. "The simple analytics of greenhouse gas emission intensity reduction targets," Energy Policy, Elsevier, vol. 33(17), pages 2231-2236, November.
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00007162. 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: (CCSD)
If references are entirely missing, you can add them using this form.