Price Versus Quantities Versus Indexed Quantities

Abstract

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.

Aggregate Emission Intensity Targets: Applications to the Paris Agreement

“…and Newell and Pizer (2003) argue that the slope of the MD function tends to be small for stock pollutants, because the flow is much smaller than the stock level. 14 Newell and Pizer (2008), Jotzo and Pezzey (2007), and Branger and Quirion (2014) assume that c 2 d 2 , although they do not provide estimates of the explicit magnitudes of the difference. Ackerman and Bueno (2011) compares the estimated marginal abatement costs for a number of nations from different models and shows that the slope of MAC differs across nations and models and tends to be increasing as the abatement level rises.…”

“…There is a large and growing literature on intensity instruments, that is, caps imposed on emission intensities of individual firms, similar to firm level emission taxes and standards (see, for example, Ebert (1998), Fischer (2003, Quirion (2005), Fischer and Fox (2007), Jotzo and Pezzey (2007), Newell and Pizer (2008), Webster, Wing and Jakobovits (2010), Fischer and Springborn (2011), Holland (2012), Branger and Quirion (2014), and Caparros, Just and Zilberman (2015)). 2 Intensity instruments are a special form of performance standards and have been adopted to regulate firm emission, such as in the lead phase-out program of the United States during the 1980s and in cases of state level renewable portfolio standards that require utilities to have certain percentages of total electricity generated from renewable sources (Lyon (2016)).…”

“…In contrast, the expected emissions are the same under tax and quantity instruments.6 Webster et al (2010) andKolstad (2005) adopt a similar approach. AlthoughBranger and Quirion (2014) compare quantity and intensity instruments at emission equivalent levels, do not do so for price instruments.…”

Output-based allocations in pollution markets with uncertainty and self-selection

“…Ellerman and Montero, 2007) as a way to smooth market shocks. More recently, Newell and Pizer (2008) and Branger and Quirion (2014) propose to index the allocation of permits to any exogenous variable, such as GDP, that could be correlated to shocks affecting permit prices. And in the specific context of the carbon market in the EU, there are proposals to introduce a market stability reserve from or to which auctioned permits could be withdrawn or add as the number of unused (i.e., banked) permits in the market reaches a critical level that could push permit prices either too high or too low (Kollenberg and Taschini, 2015).…”

On the Effectiveness of the Abatement Policy Mix: A Case Study of China’s Energy-Intensive Sectors

“…Models for multipolicy, multicountry analyses have been developed; for example, Branger and Quirion use a stochastic model to rank different policies according to their expected total social costs [20]. They found that a tax is preferred to caps, and relative caps are preferred to fixed caps in the US and emerging countries, whereas a fixed cap is a better choice over a relative cap in Europe and Japan.…”