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Greenhouse Gas Reduction Policy in the United States: Identifying Winners and Losers in an Expanded Permit Trading System

Adam Rose and Gbadebo Oladosu

Year: 2002
Volume: Volume23
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No1-1
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Abstract:
We present an analysis of the economic impacts of marketable permits for greenhouse gas reduction across industries and income groups in the United States. A computable general equilibrium model is used to simulate permit markets under various assumptions about permit allocations, industry coverage, revenue recycling, sequestration, and the inclusion of multiple greenhouse gases. Our results indicate that a permit price of as much as $128 per ton carbon would be needed to comply with the full U.S. Kyoto commitment, and that this would lead to a slightly more than I percent reduction in GDP in the year 2010. Expansion of trading to include carbon sequestration and methane mitigation can significantly lower these impacts. However, all policy alternatives simulated are somewhat regressive in terms of income distribution, though to significantly different degrees depending on the policy design.



Decentralizing a Regulatory Standard Expressed in Ratio or Intensity Form

Ross McKitrick

Year: 2005
Volume: Volume 26
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-3
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Abstract:
It is well-known that economic instruments like taxes and tradable permits can improve the efficiency of attaining a target expressed in terms of a single variable, but many energy and environmental regulations are expressed as a ratio of two variables, for instance, as emissions intensity (tons per unit output) or as a renewables requirement (percentage from wind, biomass, etc.). It has been shown previously that conventional formulas for cost-efficiency do not work in this case. This paper shows that even if conventional permit trading is used, the cost-effective implementation is unlikely to be achieved. Alternative rules are presented that permit decentralized market-based implementation of ratio standards to achieve a cost-effective implementation of a ratio standard.



Technological Modifications in the Nitrogen Oxides Tradable Permit Program

Joshua Linn

Year: 2008
Volume: Volume 29
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No3-8
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Abstract:
Tradable permit programs allow firms greater flexibility in reducing emissions than command-and-control regulations and encourage firms to use low cost abatement options, including small-scale modifications to capital equipment. This paper shows that firms have extensively modified capital equipment in the Nitrogen Oxides Budget Trading Program, which covers power plants in the eastern United States. The empirical strategy uses geographic and temporal features of the program to estimate counterfactual emissions, finding that modifications have reduced emission rates by approximately 10-15 percent. The modifications would not have occurred under command-and-control regulation and have reduced regulatory costs.



Inducing Clean Technology in the Electricity Sector: Tradable Permits or Carbon Tax Policies?

Yihsu Chen and Chung-Li Tseng

Year: 2011
Volume: Volume 32
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No3-6
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Abstract:
Tradable permits and carbon taxes are two market-based instruments commonly considered by policymakers to regulate pollutions. While a tax is fixed, predetermined by authorities, the uncertain permits price is driven by market dynamics, fluctuating with the prices of natural gas and electricity. Both instruments offer firms different incentives for adopting clean technologies. This paper explores the optimal investment timing when a coal-fired plant owner considers introducing clean technologies in face of these two policies using a real options approach. We find that tradable permits could effectively trigger adopting clean technologies at a considerably lower level of carbon price relative to a tax policy. Higher levels of volatility in permit prices are likely to induce suppliers to take early actions to hedge against carbon risks. Thus, offset and other price control mechanisms, which are designed to reduce permit prices or to suppress prices volatility, are likely to delay clean technology investments.



When a National Cap-and-Trade Policy with Carve-out Provision May Be Preferable to a National CO2 Tax

Megan H. Accordino and Deepak Rajagopal

Year: 2015
Volume: Volume 36
Number: Number 3
DOI: 10.5547/01956574.36.3.macc
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Abstract:
We analyze the effect of various combinations of state and national emissions policies on national emissions of a global pollutant, specifically, greenhouse gas emissions. We highlight the effect of unintended increases in out-of-state emissions on the efficacy of overlapping state policies. We show that emission taxes do not necessarily prevent a completely offsetting increase in out-of-state emissions when states add a state-level emissions tax to the national emissions tax. In particular, states small relative to their market will be unable to reduce national emissions with a state-level CO2 tax or a system of tradable permits. However, under a national cap-and-trade regime that allows states to be carved out, a state of any size can reduce national emissions by setting a tighter state cap. This combination yields a lower total cost than the equivalent combination of national and state CO2 taxes (if one exists) but increases the cost to consumers outside the market.





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