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COMBINING RATE-BASED AND CAP-AND-TRADE EMISSIONS POLICIES. (R828628)
Citation:
Fischer, C. COMBINING RATE-BASED AND CAP-AND-TRADE EMISSIONS POLICIES. (R828628). 3(2):S89-S103, (2003).
Description:
Rate-based emissions policies (like tradable performance standards, TPS) fix average emissions intensity, while cap-and-trade (CAT) policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider several policy options to offset the expansion, including a tax, an "exchange rate" to adjust for relative permit values, output-based allocation (OBA) for the rate-based sector, and tightening the cap. A range of combinations of tighter allocations could improve situations in both sectors with trade while holding emissions constant.
Author Keywords: Emissions trading; Permit allocation; Tradable performance standards; Climate; Greenhouse gases; Relative targets