Managing permit markets to stabilize prices
Journal Article
The political economy of environmental policy favors the use of quantity-based instruments over price-based instruments (e.g., tradable permits over green taxes), at least in the United States. With cost uncertainty, however, there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat, such as with greenhouse gases. The question arises, therefore, of whether one can design flexible quantity policies that mimic the behavior of price policies, namely stable permit prices and abatement costs. We explore a number of "quantity- plus" policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs. They do so without necessitating any monetary exchanges between the government and the regulated firms, which can be a significant political barrier to the use of price instruments. © Springer 2005.
Full Text
Duke Authors
Cited Authors
- Newell, R; Pizer, W; Zhang, J
Published Date
- June 1, 2005
Published In
Volume / Issue
- 31 / 2
Start / End Page
- 133 - 157
International Standard Serial Number (ISSN)
- 0924-6460
Digital Object Identifier (DOI)
- 10.1007/s10640-005-1761-y
Citation Source
- Scopus