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Emissions Targets and the Real Business Cycle: Intensity Targets versus Caps or Taxes

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Listed author(s):
  • Fischer, Carolyn

    ()

    (Resources for the Future)

  • Springborn, Michael R.

Abstract

For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-09-47.

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Date of creation: 10 Nov 2009
Handle: RePEc:rff:dpaper:dp-09-47
Contact details of provider: Web page: http://www.rff.org

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Keywords: emissions tax; cap-and-trade; intensity target; business cycle;

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Find related papers by JEL classification:
  • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
  • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
  • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
  • H2 - Public Economics - - Taxation, Subsidies, and Revenue
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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