Tax-versus-trading and efficient revenue recycling as issues for greenhouse gas abatement

Pezzey, John C.V.; Jotzo, Frank

doi:10.1016/j.jeem.2012.02.006

Cited by 23 publications

(12 citation statements)

References 24 publications

(34 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Numerical estimations (see part 5.2) lead to the conclusion that in terms of incurred costs uncertainty, BAU emissions uncertainty matters more than structural abatement costs uncertainty (c 2 σ e > σ c ). Pezzey and Jotzo (2012) find similar observation in their multi-party numerical model incorporating these two uncertainties: the inclusion of BAU emissions uncertainty increases the tax versus trading advantage by a factor 40. This point gives a justification for the introduction of BAU emissions uncertainty compared to Newell and Pizer (2008) model 5 .…”

Section: Comparison Of P Q and Osupporting

confidence: 53%

Price Versus Quantities Versus Indexed Quantities

Branger¹,

Quirion²

2014

SSRN Journal

View full text Add to dashboard Cite

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.

show abstract

Section: Comparison Of P Q and Osupporting

confidence: 53%

Price Versus Quantities Versus Indexed Quantities

Branger¹,

Quirion²

2014

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…Montero (2002) has shown that quantity regulation can be preferable over prices for the case of incomplete enforcement when the costs and benefits of regulation are taken into account. However, if there is a single social planner, prices, or hybrid price-quantity approaches, are considered as a social optimal policy for greenhouse gas control (Nordhaus, 1994;Kolstad, 1996;Hoel & Karp, 2002;Newell & Pizer, 2003;Pezzey & Jotzo, 2012).…”

Section: Discussionmentioning

confidence: 99%

“…The 'prices versus quantity' literature has found that reducing emissions through price control is preferable to quantity control if marginal costs are steeper compared to marginal benefits (Weitzman, 1974;Nordhaus, 1994;Newell & Pizer, 2003); that this holds under a wide range of circumstances (Kolstad, 1996;Hoel & Karp, 2002;Quirion, 2004;Pezzey & Jotzo, 2012); and that hybrid schemes of prices and quantities can reduce costs associated with uncertainty about benefits and costs (Roberts & Spence, 1976;Mandell, 2008), address problems of asymmetric information (Krysiak & Oberauner, 2010), and contribute to cost containment (Pizer, 2002). This literature pivots around the relationship between the marginal cost and marginal benefit of the provision of a public good under uncertainty.…”

Section: Introductionmentioning

confidence: 99%

Linking Price and Quantity Pollution Controls Under Uncertainty

Wood¹,

Heindl²,

Jotzo³

et al. 2013

SSRN Journal

Self Cite

View full text Add to dashboard Cite

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-Technical SummaryIn some cases, linking of policies for the provision of international public goods can increase welfare on a global scale. One example is the international linking of national policies for the reduction of greenhouse gas emissions. By pooling of abatement options, economic efficiency of regulation can be increased since least-cost abatement options can be identified more easily. Linking of policies can lead to situations where abatement costs decrease in one country, but increase in another country. The magnitude of expected changes in abatement costs is an important determinant whether a country is interested in direct policy linking or not.In this paper, we consider the case of two countries that have to produce an exogenously given amount of a public good (e.g. greenhouse gas abatement) under uncertain (abatement) costs or otherwise purchase the good on a market (e.g.international emissions trading). We compare the case when both countries choose regulation by quantities ("quantity-quantity linking") to a situation where one of the countries is choosing prices (e.g. a carbon tax) while the other country chooses quantities ("price-quantity linking"). To examine the effective costs of regulation for both countries under uncertainty and different policy scenarios, we numerically solve the model where uncertainty is modelled by assuming that abatement costs have a lognormal distribution.It is shown that in most cases, total expected costs increase for the country that chooses prices under international emissions trading when compared to quantity regulation.The only case for which we found that the price-setting country would be better off choosing prices occurred when the quantity-setting country had a much more onerous target than the price-setting country. Countries will further be unable to identify a tax rate that minimizes costs because of uncertainty and unknown correlation of costs between countries. Large economies face higher expected cost increases relative to smaller economies when choosing regulation by prices under international emissions trading.If there are specified quantity targets for the provision of an international public good, and international policy linkages exist, price regulation will usually lead to both higher costs and higher variance of costs when compared to quantity regulation. In this case, price regulation will not serve as a mechanism for cost containment. Das Wichtigste in Kürze AbstractThis paper examines...

show abstract

“…Hepburn points out that if there are tipping points in the climate system, a quantity instrument might be preferred to preclude rapid climate change and associated damages . Pezzey and Jotzo highlight the political economy considerations of raising and recycling substantial revenues as factors that work against its wider adoption in practice …”

Section: Scope and Links To Related Literaturementioning

confidence: 99%

How to price carbon in good times … and bad!

Doda

2015

WIREs Climate Change

View full text Add to dashboard Cite

Emissions trading systems and carbon taxes are two market-based policy instruments for responding to the climate change externality. This article focuses on the relationship between the design of these carbon pricing instruments and business cycle fluctuations. In particular, whether and how these instruments should respond to business cycles is a topical policy question. To answer it, the article brings together the relevant empirical and theoretical results from the academic literature. It finds that building responsiveness into the design of carbon pricing instruments can reduce the burden of regulation by distributing it more evenly over time. Specifically, relative to a fixed cap emissions trading system, this can be achieved by relaxing the cap during economic expansions and tightening it during recessions. Similarly, a carbon tax regime in which the tax is higher during expansions, and lower during recessions, is likely to improve welfare compared to a cyclically unresponsive tax. In practice, a mechanism which renders real-world carbon pricing instruments responsive is a challenging task. The article provides an overview of the trade-offs involved by focusing on the broad classes of mechanisms explored in the literature. The choice of responsiveness-inducing mechanism must crucially consider country characteristics such as the properties of fluctuations in the country's GDP and emissions, any relevant political economy concerns and its institutional background.

show abstract

Tax-versus-trading and efficient revenue recycling as issues for greenhouse gas abatement

Cited by 23 publications

References 24 publications

Price Versus Quantities Versus Indexed Quantities

Price Versus Quantities Versus Indexed Quantities

Linking Price and Quantity Pollution Controls Under Uncertainty

How to price carbon in good times … and bad!

Contact Info

Product

Resources

About