Does uncertainty justify intensity emission caps?

Quirion, Philippe

doi:10.1016/j.reseneeco.2005.05.002

Cited by 77 publications

(57 citation statements)

References 12 publications

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“…As in Quirion (2005), the comparison between absolute and relative caps does not depend on uncertainty in abatement costs. In this framework it depends only on uncertainty in future BAU emissions, uncertainty in future economic output, and their correlation.…”

Section: Relative Ormentioning

confidence: 99%

“…As mentioned, in this framework, authors advocate for the superiority of the carbon tax (Newell and Pizer, 2003). Quirion (2005) extended this approach to indexed regulation with a stochastic analytical model featuring uncertainty in business-as-usual emissions and in the slope of the marginal abatement curve. He found that intensity targets ranked better than price instrument when uncertainty in abatement costs was high.…”

Section: Introductionmentioning

confidence: 99%

“…He found that intensity targets ranked better than price instrument when uncertainty in abatement costs was high. Newell and Pizer (2008) reexamined this problem with an additive uncertainty in abatement cost and a correlation between shocks in abatement costs and economic activity (Quirion (2005) had a multiplicative uncertainty and an implicit perfect correlation). They found that the ranking of policies depended on parameters describing the first and second moment of the index and the ex post optimal quantity level.…”

Section: Introductionmentioning

confidence: 99%

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Price Versus Quantities Versus Indexed Quantities

Branger¹,

Quirion²

2014

SSRN Journal

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We develop a stochastic model to rank different policies (tax, fixed cap and relative cap) according to their expected total social costs. Three types of uncertainties are taken into account: uncertainty about abatement costs, businessas-usual (BAU) emissions and future economic output (the two latter being correlated). Two parameters: the ratio of slopes of marginal benefits and marginal costs, and the above-mentioned correlation, are crucial to determine which instrument is preferred.When marginal benefits are relatively flatter than marginal costs, prices are preferred over fixed caps (Weitzman's result). When the former correlation is higher than a parameter-dependent threshold, relative caps are preferred to fixed caps. An intermediate condition is found to compare the tax instrument and the relative cap.The model is then empirically tested for seven different regions (China, the United States, Europe, India, Russia, Brazil and Japan). We find that tax is preferred to caps (absolute or relative) in all cases, and that relative caps are preferred to fixed caps in the US and emerging countries (except Brazil where it is ambiguous), whereas fixed cap are preferred to relative cap in Europe and Japan.

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Section: Relative Ormentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Price Versus Quantities Versus Indexed Quantities

Branger¹,

Quirion²

2014

SSRN Journal

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“…Hoel and Karp 2005, Newell and Pizer 2008, Quirion 2005 or in general equilibrium models (e.g. Goulder et al 1999Dissou 2005, Jotzo and Pezzey 2007 quota and the optimal taxation are found to move procycally.…”

Section: Introductionmentioning

confidence: 99%

Environmental policy and macroeconomic dynamics in a new Keynesian model

Annicchiarico

Dio

2015

Journal of Environmental Economics and Management

233

148

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This paper studies the dynamic behaviour of an economy under different environmental policy regimes in a New Keynesian model with nominal and real uncertainty. We find the following results: (i) an emissions cap policy is likely to dampen macroeconomic fluctuations; (ii) staggered price adjustment alters significantly the performance of the environmental policy regime put in place; (iii) the optimal environmental policy response to shocks is strongly influenced by the degree to which prices adjust and by the monetary policy reaction.

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“…Correspondingly, Quirion (2005) and Newell and Pizer (2008) set out to determine the conditions under which intensity targeting ought to be preferred over fixed targets, or vice versa, by choosing the policy that maximizes the expected net benefits from abatement. Following the analytical framework in Weitzman (1974), they find that indexed quantities are likely to perform better when there is a stronger positive correlation between the index and abatement cost uncertainty, with relatively small index variance as well.…”

mentioning

confidence: 99%

Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off?

2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. Terms of use: Documents inThe unauthorized commercial use of Bank documents is prohibited and may be punishable under the Bank's policies and/or applicable laws. Copyright ©Inter-American Development Bank. This working paper may be reproduced for any non-commercial purpose. It may also be reproduced in any academic journal indexed by the American Economic Association's EconLit, with previous consent by the Inter-American Development Bank (IDB), provided that the IDB is credited and that the author(s) receive no income from the publication. Tradable permit markets for carbon dioxide (C0 2 ) emissions respond to short-run fluctuations in economic activity. To provide stability, both price and quantity interventions have been proposed. This paper focuses on the relative performance of fixed versus intensity allowances in the presence of both productivity and energy price uncertainty. Both instruments achieve the same steady-state emissions reduction target of 20 percent, which is similar to the current policy proposals, and the regulator then chooses the allowance policy that has the lowest expected abatement cost. A standard real business cycle (RBC) model is used to solve for the expected abatement cost under both policies. Expected cost outcomes are compared using data from the U.S. economy as the baseline scenario. Unlike previous studies, this paper's results show that, under a reasonable model calibration, fixed allowances outperform intensity allowances by a cost difference of as much as 30 percent. Cataloging-in-Publication JEL classifications: E32, Q54, Q58

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Does uncertainty justify intensity emission caps?

Cited by 77 publications

References 12 publications

Price Versus Quantities Versus Indexed Quantities

Price Versus Quantities Versus Indexed Quantities

Environmental policy and macroeconomic dynamics in a new Keynesian model

Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off?

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