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Price Regulation in Greenhouse Gas Emissions Cap-and-Trade Systems: From Theory to Policies

Authors: Stefano Balbi;

Price Regulation in Greenhouse Gas Emissions Cap-and-Trade Systems: From Theory to Policies

Abstract

Notwithstanding the infinite debate on price versus quantity instruments in the design of a global climate policy, Cap-and-Trade systems are dominating the policymakers' choices worldwide. This is a prime issue for the traditional equilibrium economics, which has argued that the structure of the costs and damages in climate change gives a strong presumption to price-type approaches, building on the seminal work of Weitzman (1974). Therefore, price regulation of Cap-and-Trade systems has been widely proposed as an efficient way to tackle cost uncertainty of abatement, which represents one of the main theoretical problems of using emissions trading. A further issue is the possible carbon price volatility. This paper reviews the theory behind different types of price cap systems and tries to highlight some insights for the existing and upcoming real world climate policies. The outcome is that a price cap alone, without a price floor, would prevent any Cap-and-Trade policy to reach the abatement target. Banking and borrowing are already available flexibility mechanisms through which combating the carbon price volatility. However, in dealing with price spikes, it might be useful to consider the possibility of linking a reserve allowance system with the access to certain types of offset credits.

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
Average
Average
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