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Early Emissions Reduction Programs: An Application to CO2 Policy

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  • Parry, Ian

    () (Resources for the Future)

  • Toman, Michael

Abstract

In the wake of the December 1997 Kyoto Protocol, which, if implemented, would oblige the United States and other industrialized countries to reduce greenhouse gases (GHGs) by 2008–2012, a number of proposals have been offered to increase the incentives for reducing emissions over the nearer term. The existence of an interim period between setting and implementing environmental goals is ubiquitous in environmental policymaking. The existence of this interim period gives rise to several potential rationales for early emissions reductions. In this paper we use a series of simple models and numerical illustrations to analyze some aspects of the performance of early emissions reduction programs in the case of GHGs. We show that there is a compelling economic case for allowing early GHGs reduction credits if countries (not just individual firms) could bank early credits to offset future emissions. The annualized cost savings to the United States from spreading out abatement over time could easily amount to several billion dollars. But without the aggregate banking provision, such credits could easily generate an excessive amount of abatement and produce net economic losses. We analyze a number of other issues that affect the economic efficiency of early reduction credits, including asymmetric information, learning-by-doing (LBD), and fiscal impacts. We also compare the performance of an early reduction credits program with that of an early cap-and-trade program. This latter approach, if properly scaled, can avoid many of the problems associated with early reduction credits.

Suggested Citation

  • Parry, Ian & Toman, Michael, 2000. "Early Emissions Reduction Programs: An Application to CO2 Policy," Discussion Papers dp-00-26, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-00-26
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    References listed on IDEAS

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    Cited by:

    1. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November.
    2. Thomas P. Lyon & John W. Maxwell, 2004. "Mandatory and Voluntary Approaches to Mitigating Climate Change," Working Papers 2004-28, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    3. Xiangsheng Dou, 2015. "The essence, feature and role of low carbon economy," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 17(1), pages 123-136, February.
    4. Di Maria, Corrado & Smulders, Sjak & van der Werf, Edwin, 2012. "Absolute abundance and relative scarcity: Environmental policy with implementation lags," Ecological Economics, Elsevier, vol. 74(C), pages 104-119.
    5. Kruger, Joseph, 2005. "From SO2 to Greenhouse Gases: Trends and Events Shaping Future Emissions Trading Programs in the United States," Discussion Papers 10819, Resources for the Future.
    6. Kruger, Joseph, 2005. "From SO2 to Greenhouse Gases: Trends and Events Shaping Future Emissions Trading Programs in the United States," Discussion Papers dp-05-20, Resources For the Future.
    7. Wang, Mingxi & Wang, Mingrong & Wang, Shouyang, 2012. "Optimal investment and uncertainty on China's carbon emission abatement," Energy Policy, Elsevier, vol. 41(C), pages 871-877.
    8. Di Maria, Corrado & Smulders, Sjak & van der Werf, Edwin, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Climate Change Modelling and Policy Working Papers 46626, Fondazione Eni Enrico Mattei (FEEM).
    9. Kim, Eun-Hee & Lyon, Thomas P., 2011. "Strategic environmental disclosure: Evidence from the DOE's voluntary greenhouse gas registry," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 311-326, May.
    10. Corrado Di Maria & Sjak Smulders & Edwin van der Werf, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Working Papers 2008.92, Fondazione Eni Enrico Mattei.

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    • F0 - International Economics - - General

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