In:
AEA Papers and Proceedings, American Economic Association, Vol. 110 ( 2020-05-01), p. 113-118
Abstract:
While a firm knows the carbon price with certainty under a tax, it must form an expectation about future allowance prices to identify its cost-effective abatement investment under a capand-trade program. We illustrate graphically how errors in forming this expectation increase the costs of irreversible pollution abatement investment under cap-and-trade relative to a tax. We describe empirical “cost-effectiveness anomalies” in allowance markets that may be attributed to cap-and-trade's inherent uncertainty. We model investment under simulated US carbon tax and cap-and-trade policies and find that allowance price uncertainty can increase resource costs 20 percent for a given quantity of emission abatement.
Type of Medium:
Online Resource
ISSN:
2574-0768
,
2574-0776
DOI:
10.1257/pandp.20201083
Language:
English
Publisher:
American Economic Association
Publication Date:
2020
detail.hit.zdb_id:
2932594-8
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