Taxes versus quantities for a stock pollutant with endogenous abatement costs and asymmetric information

Karp, Larry S.; Zhang, Jiangfeng

doi:10.1007/s00199-010-0561-y

Cited by 72 publications

(22 citation statements)

References 47 publications

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“…Pizer (2002) employed a modified DICE model (Nordhaus, 1994) and found a welfare gain from the optimal price five times larger than setting the optimal quota. Subsequent models (Hoel and Karp, 2002;Karp and Zhang, 2006;Karp and Zhang, 2012) address the role played by new information and learning; they also find that 17 The Weitzman (1974) analysis focuses on a situation in which all regulated firms create the same environmental damage; this assumption is clearly appropriate in the context of climate change. 18 Conversely, fixing the quantity of emissions becomes preferable close to a "tipping point" at which climate damages escalate sharply.…”

Section: The Economics Of Instrument Choice: Prices Vs Quantitiesmentioning

confidence: 99%

The Political Economy of a Carbon Price Floor for Power Generation

Newbery¹,

Reiner²,

Ritz³

2019

The Energy Journal

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The EU carbon price lies well below estimates of the social cost of carbon and "targetconsistent" carbon prices needed to deliver ambitious targets such as the 40% reduction target for 2030. In light of this, the UK introduced a carbon price floor (CPF) for its electricity sector in 2013 and the new Dutch Government has recently made a similar commitment, while successive French Governments have called for an EU-wide CPF. This paper analyzes the impacts and design of a power-sector CPF, both at the EU and national level, using a political-economy approach. We find a good case for introducing such a price-based instrument into the EU ETS. We suggest that a CPF should be designed to "top up" the EUA price to €25-30/tCO 2 , rising annually at 3-5% above inflation, at least until 2030. We argue that the new EU Market Stability Reserve enhances the value of a CPF in terms of delivering climate benefits, and discuss the potential for a regional CPF in North-West Europe. We also review international policy experience with price floors (and ceilings).

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Section: The Economics Of Instrument Choice: Prices Vs Quantitiesmentioning

confidence: 99%

The Political Economy of a Carbon Price Floor for Power Generation

Newbery¹,

Reiner²,

Ritz³

2019

The Energy Journal

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“…Subsequent more sophisticated dynamic models also tend to support this finding. Karp and Zhang (2012) point out that if, reasonably, investors have better cost information than policy makers, carbon taxes are potentially time-inconsistent while quotas are not in the face of cost shocks. Nevertheless, they find that in their linear-quadratic model with plausible parameters, taxes are still welfare superior to quotas.…”

Section: Carbon Taxes Carbon Caps and Credibilitymentioning

confidence: 99%

Policies for decarbonizing a liberalized power sector

Newbery

2018

Economics

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Given the agreed urgency of decarbonizing electricity and the need to guide decentralized private decisions, an adequate and credible carbon price appears essential. The paper models and quantifies the break-even carbon price for mature zero-carbon electricity investments. It appears an attractive alternative given the difficulty of measuring the social cost of carbon, but modelling shows it extremely sensitive to projected fuel prices, the rate of interest, and the capital cost of generation options, all of which are very uncertain. This has important implications, and justifies combining a carbon price floor with suitable long-term contracts for electricity investments.JEL C65 Q42 Q48 Q51 Q54

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“…In order to capture the reality of climate change, it is necessary to consider a framework where emissions are allowed to accumulate into a stock of pollution over time, and damage depends on this stock. Papers that allow for such a dynamic framework include, for example, [26] which compares the e¤ects of emission taxes and quotas when a regulator and …rms have asymmetric information about abatement costs, and …rms make investment decisions that a¤ect their future abatement costs. [27] show that the timing of implementing optimal emission reduction policy depends on the set of policy instruments available: climate-speci…c R&D targeting instruments and carbon taxes.…”

Section: Dynamic Models Of Transboundary Pollution and Ieasmentioning

confidence: 99%

Transboundary Pollution, Clean Technologies and International Environmental Agreements

2016

The WSPC Reference on Natural Resources and Environmental Policy in the Era of Global Change

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This chapter reviews recent developments on the analysis of the impact of clean technologies on the outcome of transboundary pollution games and on the size of stable environmental agreements. It is shown that given a fall in the emission-output ratio, countries may respond by increasing their emissions resulting in an increase in pollution stock and decrease in welfare. This rebound e¤ect happens when the damage and/or the initial stock of pollution are relatively large and when the natural rate of decay of pollution is relatively small. This implies that clean technologies may not be a substitute for cooperation on mitigation. The impact of cleaner technologies on the success of environmental agreements is then analyzed when countries are farsighted. In the case of three groups of countries, the grand coalition may be destabilized by the implementation of cleaner technologies, ultimately resulting in higher global emissions and lower global welfare. In the case of more than three countries, implementing cleaner technologies may result in a discrete jump, either upward or downward, of the largest stable coalition size and welfare.

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Taxes versus quantities for a stock pollutant with endogenous abatement costs and asymmetric information

Cited by 72 publications

References 47 publications

The Political Economy of a Carbon Price Floor for Power Generation

The Political Economy of a Carbon Price Floor for Power Generation

Policies for decarbonizing a liberalized power sector

Transboundary Pollution, Clean Technologies and International Environmental Agreements

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