Combining Price and Quantity Controls under Partitioned Environmental Regulation
This paper analyzes hybrid emissions trading systems (ETS) under partitioned environmental regulation when firms’ abatement costs and future emissions are uncertain. We show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against difference...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | en_US |
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MIT Joint Program on the Science and Policy of Global Change
2017
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| Online Access: | http://hdl.handle.net/1721.1/111801 |
| _version_ | 1826208876156944384 |
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| author | Abrell, J. Rausch, S. |
| author_facet | Abrell, J. Rausch, S. |
| author_sort | Abrell, J. |
| collection | MIT |
| description | This paper analyzes hybrid emissions trading systems (ETS) under partitioned environmental regulation when firms’ abatement costs and future emissions are uncertain. We show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against differences in marginal abatement costs across partitions. Price bounds are more efficient than abatement bounds as they also use information on firms’ abatement technologies while abatement bounds can only address emissions uncertainty. Using a numerical stochastic optimization model with equilibrium constraints for the European carbon market, we find that introducing hybrid policies in EU ETS reduces expected excess abatement costs of achieving targeted emissions reductions under EU climate policy by up to 89 percent. We also find that under partitioned regulation there is a high likelihood for hybrid policies to yield sizeable ex-post cost reductions. |
| first_indexed | 2024-09-23T14:14:02Z |
| format | Working Paper |
| id | mit-1721.1/111801 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T14:14:02Z |
| publishDate | 2017 |
| publisher | MIT Joint Program on the Science and Policy of Global Change |
| record_format | dspace |
| spelling | mit-1721.1/1118012019-04-12T20:10:33Z Combining Price and Quantity Controls under Partitioned Environmental Regulation Abrell, J. Rausch, S. This paper analyzes hybrid emissions trading systems (ETS) under partitioned environmental regulation when firms’ abatement costs and future emissions are uncertain. We show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against differences in marginal abatement costs across partitions. Price bounds are more efficient than abatement bounds as they also use information on firms’ abatement technologies while abatement bounds can only address emissions uncertainty. Using a numerical stochastic optimization model with equilibrium constraints for the European carbon market, we find that introducing hybrid policies in EU ETS reduces expected excess abatement costs of achieving targeted emissions reductions under EU climate policy by up to 89 percent. We also find that under partitioned regulation there is a high likelihood for hybrid policies to yield sizeable ex-post cost reductions. 2017-10-06T19:20:40Z 2017-10-06T19:20:40Z 2016-07 Working Paper http://hdl.handle.net/1721.1/111801 Report 301 en_US MIT Joint Program Report Series;301 application/pdf MIT Joint Program on the Science and Policy of Global Change |
| spellingShingle | Abrell, J. Rausch, S. Combining Price and Quantity Controls under Partitioned Environmental Regulation |
| title | Combining Price and Quantity Controls under Partitioned Environmental Regulation |
| title_full | Combining Price and Quantity Controls under Partitioned Environmental Regulation |
| title_fullStr | Combining Price and Quantity Controls under Partitioned Environmental Regulation |
| title_full_unstemmed | Combining Price and Quantity Controls under Partitioned Environmental Regulation |
| title_short | Combining Price and Quantity Controls under Partitioned Environmental Regulation |
| title_sort | combining price and quantity controls under partitioned environmental regulation |
| url | http://hdl.handle.net/1721.1/111801 |
| work_keys_str_mv | AT abrellj combiningpriceandquantitycontrolsunderpartitionedenvironmentalregulation AT rauschs combiningpriceandquantitycontrolsunderpartitionedenvironmentalregulation |