Optimal Mix of Emissions Taxes and Cap-and-Trade
2008 (English)In: Journal of Environmental Economics and Management, ISSN 0095-0696, E-ISSN 1096-0449, Vol. 56, no 2, 131-140 p.Article in journal (Refereed) Published
In practice, different emitters of a particular pollutant are sometimes subjected to different control mechanisms. This paper focuses on the situation where a part of the economy is regulated by a cap-and-trade program, while the rest is subjected to an emissions tax. Using an extended version of Weitzman's 'Prices vs. Quantities' model [M.L. Weitzman, Prices vs. quantities, Revi. Econ. Stud. 41 (1974) 477-491], we analyze the conditions under which this is superior, from an efficiency point of view, to subjecting the whole economy to either of these control mechanisms. The paper addresses a crucial trade-off between two sources of efficiency loss, one due to cost-effectiveness issues and another due to emissions volume. This trade-off determines the optimal size of each sector. It is shown that the size of the taxed sector, at an optimum, increases with the relative steepness of the aggregate marginal abatement cost function.
Place, publisher, year, edition, pages
2008. Vol. 56, no 2, 131-140 p.
regulation, uncertainty, emissions tax, tradable permits
IdentifiersURN: urn:nbn:se:kth:diva-61579DOI: 10.1016/j.jeem.2007.12.004ISI: 000259714500003OAI: oai:DiVA.org:kth-61579DiVA: diva2:479386
QC 201201192012-01-172012-01-172012-01-19Bibliographically approved