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A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today?s Emissions

Author

Listed:
  • T. Nicolaus Tideman
  • Florenz Plassmann

Abstract

The efficiency of mechanisms to control CO2 emissions is limited by disagreement about the harm from these emissions. Thus existing emission control mechanisms require negotiated compromise regarding either the efficient price or the level of emissions to be tolerated. As an alternative to conventional mechanisms, we offer a mechanism in which today?s price of emissions is determined by a market-based estimate of future beliefs about the cost of emissions. This reduces the uncertainty about the right price for emissions and makes it likely that emitters will base their emission decisions on more accurate estimates of the harm they cause.

Suggested Citation

  • T. Nicolaus Tideman & Florenz Plassmann, 2007. "A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today?s Emissions," Working Papers e07-9, Virginia Polytechnic Institute and State University, Department of Economics.
  • Handle: RePEc:vpi:wpaper:e07-9
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    File URL: ftp://repec.econ.vt.edu/Papers/Tideman/PricingCO2.pdf
    File Function: First version, 2007
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    References listed on IDEAS

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    1. repec:reg:rpubli:259 is not listed on IDEAS
    2. John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
    3. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    4. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, pages 107-126.
    5. Paul W. Rhode & Koleman S. Strumpf, 2004. "Historical Presidential Betting Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 127-141, Spring.
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    Keywords

    Environmental regulation; Climate change; Prediction market;

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