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

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  • 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.

Suggested Citation

  • Fischer, Carolyn & Springborn, Michael R., 2009. "Emissions Targets and the Real Business Cycle: Intensity Targets versus Caps or Taxes," Discussion Papers dp-09-47, Resources For the Future.
    • Handle: RePEc:rff:dpaper:dp-09-47
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    References listed on IDEAS

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    More about this item

    Keywords

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

    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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