Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade

30 Pages Posted: 27 Aug 2008 Last revised: 28 Sep 2009

See all articles by Brian C. Murray

Brian C. Murray

Duke University

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

William A. Pizer

Duke University

Multiple version iconThere are 2 versions of this paper

Date Written: August 2008

Abstract

On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change -- such as taxes or a "safety-valve" price ceiling for cap-and-trade -- while environmental advocates have sought a more clear quantitative limit on emissions. This paper presents a simple modification to the idea of a safety valve: a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to tax or other price-based policies. The last point highlights the deficiencies in several previous studies of price and quantity controls for climate change that do not adequately capture the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.

Suggested Citation

Murray, Brian C. and Newell, Richard G. and Pizer, William A., Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade (August 2008). NBER Working Paper No. w14258. Available at SSRN: https://ssrn.com/abstract=1248780

Brian C. Murray

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Richard G. Newell (Contact Author)

Duke University - Nicholas School of Environment ( email )

Box 90228
Durham, NC 27708-0328
United States
919-681-8865 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

William A. Pizer

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
18
Abstract Views
792
PlumX Metrics