A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today's Emissions

12 Pages Posted: 20 Sep 2007

See all articles by T. Nicolaus Tideman

T. Nicolaus Tideman

Virginia Polytechnic Institute & State University - Department of Economics

Florenz Plassmann

SUNY at Binghamton, Department of Economics

Date Written: June 1, 2007

Abstract

The efficiency of mechanisms to control CO2 emissions is limited by disagreement about the harm from these emissions. Thus existing emission control mechanisms require negotiated compromise regarding either the efficient price or the level of emissions to be tolerated. As an alternative to conventional mechanisms, we offer a mechanism in which today's price of emissions is determined by a market-based estimate of future beliefs about the cost of emissions. This reduces the uncertainty about the right price for emissions and makes it likely that emitters will base their emission decisions on more accurate estimates of the harm they cause.

Keywords: Environmental regulation, Climate change, Prediction market

JEL Classification: H23, Q52, D84

Suggested Citation

Tideman, T. Nicolaus and Plassmann, Florenz, A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today's Emissions (June 1, 2007). Available at SSRN: https://ssrn.com/abstract=1015812 or http://dx.doi.org/10.2139/ssrn.1015812

T. Nicolaus Tideman

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

Florenz Plassmann (Contact Author)

SUNY at Binghamton, Department of Economics ( email )

Binghamton, NY 13902-6000
United States
607-777-4304 (Phone)

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