Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve
Current proposals for greenhouse gas emissions regulations in the United States mainly take the form of emissions caps with tradable permits. Since Weitzman's (1974) [3] study of prices vs. quantities, economic theory predicts that a price instrument is superior under uncertainty in the case of...
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| Format: | Article |
| Language: | en_US |
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Elsevier
2015
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| Online Access: | http://hdl.handle.net/1721.1/98537 |
| _version_ | 1826203811879845888 |
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| author | Webster, Mort Sue Wing, Ian Jakobovits, Lisa |
| author2 | Massachusetts Institute of Technology. Joint Program on the Science & Policy of Global Change |
| author_facet | Massachusetts Institute of Technology. Joint Program on the Science & Policy of Global Change Webster, Mort Sue Wing, Ian Jakobovits, Lisa |
| author_sort | Webster, Mort |
| collection | MIT |
| description | Current proposals for greenhouse gas emissions regulations in the United States mainly take the form of emissions caps with tradable permits. Since Weitzman's (1974) [3] study of prices vs. quantities, economic theory predicts that a price instrument is superior under uncertainty in the case of stock pollutants. Given the general belief in the political infeasibility of a carbon tax in the US, there has been recent interest in two other policy instrument designs: hybrid policies and intensity targets. We extend the Weitzman model to derive an analytical expression for the expected net benefits of a hybrid instrument under uncertainty. We compare this expression to one developed by Newell and Pizer (2006) [6] for an intensity target, and show the theoretical minimum correlation between GDP and emissions required for an intensity target to be preferred over a hybrid. In general, we show that unrealistically high correlations are required for the intensity target to be preferred to a hybrid, making a hybrid a more practical instrument in practice. We test the predictions by performing Monte Carlo simulation on a computable general equilibrium model of the US economy. The results are similar, and we show with the numerical model that when marginal abatement costs are non-linear, an even higher correlation is required for an intensity target to be preferred over a safety valve. |
| first_indexed | 2024-09-23T12:43:29Z |
| format | Article |
| id | mit-1721.1/98537 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T12:43:29Z |
| publishDate | 2015 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | mit-1721.1/985372022-10-01T10:43:55Z Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve Webster, Mort Sue Wing, Ian Jakobovits, Lisa Massachusetts Institute of Technology. Joint Program on the Science & Policy of Global Change Webster, Mort Jakobovits, Lisa Current proposals for greenhouse gas emissions regulations in the United States mainly take the form of emissions caps with tradable permits. Since Weitzman's (1974) [3] study of prices vs. quantities, economic theory predicts that a price instrument is superior under uncertainty in the case of stock pollutants. Given the general belief in the political infeasibility of a carbon tax in the US, there has been recent interest in two other policy instrument designs: hybrid policies and intensity targets. We extend the Weitzman model to derive an analytical expression for the expected net benefits of a hybrid instrument under uncertainty. We compare this expression to one developed by Newell and Pizer (2006) [6] for an intensity target, and show the theoretical minimum correlation between GDP and emissions required for an intensity target to be preferred over a hybrid. In general, we show that unrealistically high correlations are required for the intensity target to be preferred to a hybrid, making a hybrid a more practical instrument in practice. We test the predictions by performing Monte Carlo simulation on a computable general equilibrium model of the US economy. The results are similar, and we show with the numerical model that when marginal abatement costs are non-linear, an even higher correlation is required for an intensity target to be preferred over a safety valve. Doris Duke Charitable Foundation 2015-09-17T17:14:54Z 2015-09-17T17:14:54Z 2010-03 2007-12 Article http://purl.org/eprint/type/JournalArticle 00950696 1096-0449 http://hdl.handle.net/1721.1/98537 Webster, Mort, Ian Sue Wing, and Lisa Jakobovits. “Second-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve.” Journal of Environmental Economics and Management 59, no. 3 (May 2010): 250–259. en_US http://dx.doi.org/10.1016/j.jeem.2010.01.002 Journal of Environmental Economics and Management Creative Commons Attribution-Noncommercial-NoDerivatives http://creativecommons.org/licenses/by-nc-nd/4.0/ application/pdf Elsevier Other univ. web domain |
| spellingShingle | Webster, Mort Sue Wing, Ian Jakobovits, Lisa Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve |
| title | Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve |
| title_full | Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve |
| title_fullStr | Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve |
| title_full_unstemmed | Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve |
| title_short | Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve |
| title_sort | second best instruments for near term climate policy intensity targets vs the safety valve |
| url | http://hdl.handle.net/1721.1/98537 |
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