Combining Rate-Based and Cap-and-Trade Emissions Policies
Rate-based emissions policies (like tradable performance standards) fix average emissions intensity, while cap-and-trade policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider a range of policy options to offset the expansion, including unilateral ones when jurisdictional differences require. The cap-and-trade jurisdiction could impose an "exchange rate" to adjust for relative permit values, but marginal abatement cost equalization is sacrificed. Still, that jurisdiction may prefer adjusted trade over tightening their own cap, which transfers away rents. Although the rate-based sector would have to implement the switch to output-based allocation of a cap, its surplus would be higher than with adjusted trade, which is also preferred to no trade. The cap-and-trade sector would also be better off. Thus, a range of combinations of tighter allocations could improve situations in both sectors with trade, while holding emissions constant.
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.:
- Bovenberg, A.L. & de Mooij, R.A., 1994.
"Environmental levies and distortionary taxation,"
Other publications TiSEM
4b32deaa-ec2f-4de7-b59b-9, School of Economics and Management.
- Don Fullerton & Gilbert E. Metcalf, 1997.
"Environmental Controls, Scarcity Rents, and Pre-Existing Distortions,"
Discussion Papers Series, Department of Economics, Tufts University
9703, Department of Economics, Tufts University.
- Fullerton, Don & Metcalf, Gilbert E., 2001. "Environmental controls, scarcity rents, and pre-existing distortions," Journal of Public Economics, Elsevier, vol. 80(2), pages 249-267, May.
- Don Fullerton & Gilbert Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," NBER Working Papers 6091, National Bureau of Economic Research, Inc.
- Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002.
"The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances,"
The Electricity Journal,
Elsevier, vol. 15(5), pages 51-62, June.
- Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," Discussion Papers dp-02-15-, Resources For the Future.
- Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
- repec:ner:tilbur:urn:nbn:nl:ui:12-152985 is not listed on IDEAS
- Fischer, Carolyn & Bernard, Alain & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers dp-01-31-, Resources For the Future.
- Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
- Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March.
- Fischer, Carolyn & Hoffmann, Sandra & Yoshino , Yutaka, 2002. "Multilateral Trade Agreements and Market-Based Environmental Policies," Discussion Papers dp-02-28, Resources For the Future.
When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-03-32. 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: (Webmaster)
If references are entirely missing, you can add them using this form.