Emission Trading Restrictions with Endogenous Technological Change

18 Pages Posted: 25 Sep 2000

See all articles by Paolo Buonanno

Paolo Buonanno

Fondazione Eni Enrico Mattei (FEEM), Milan

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM); Ca' Foscari University of Venice; CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division); IPCC; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Centre for European Policy Studies, Brussels; Green Growth Knowledge Platform; International Center for Climate Governance

Efrem Castelnuovo

University of Melbourne - Department of Economics

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (DESP); Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy

Date Written: 2000

Abstract

In this paper we use a simple climate model with endogenous environmental technical change in order to analyse the effects on equity and efficiency of different degrees of restrictions on trade in the market for pollution permits. The model is obtained by incorporating in Nordhaus and Yang (1996)'s RICE model the notion of induced technical change as proposed in Goulder and Mathai (1998). With the help of such model we aim at assessing the pros and cons of the introduction of ceilings on emission trading. In particular, we analyse the implications of restrictions on trading both in terms of their cost effectiveness and in terms of their distributional effects. The analysis takes into account the role of environmental technical change that could be enhanced by the presence of ceilings on trading. However, this effect is shown to be offset by the increased abatement cost induced by the larger than optimal adoption of domestic policy measures when ceilings are binding. Hence, our analysis provides little support in favour of quantitative restrictions on emission trading even when these restrictions actually have a positive impact on technical change. Even in terms of equity, ceilings find no justification within our theoretical and modelling framework. Indeed, we find that flexibility mechanisms in the presence of endogenous technical change increase equity and that the highest equity levels are achieved without ceilings, both in the short and in the long run. assessment, emission trading, technical change, ceilings

Keywords: Climate policy, environmental modelling, integrated

JEL Classification: H0, H2, H3

Suggested Citation

Buonanno, Paolo and Carraro, Carlo and Castelnuovo, Efrem and Galeotti, Marzio, Emission Trading Restrictions with Endogenous Technological Change (2000). FEEM Working Paper No. 43.00. Available at SSRN: https://ssrn.com/abstract=235093 or http://dx.doi.org/10.2139/ssrn.235093

Paolo Buonanno

Fondazione Eni Enrico Mattei (FEEM), Milan

Corso Magenta 63
20123 Milan
Italy

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM) ( email )

Isola di San Giorgio Maggiore 8
Venezia, 30124
Italy
+39 04 12700460 (Phone)
+39 04 12700412 (Fax)

Ca' Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy
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+39 04 1234 9176 (Fax)

HOME PAGE: http://www.carlocarraro.org/

CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division) ( email )

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Lecce, 73100
Italy
+39 0832 288650 (Phone)
+39 0832 277603 (Fax)

IPCC ( email )

C/O World Meteorological Organization
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Centre for European Policy Studies, Brussels

1 Place du Congres
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Belgium
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Green Growth Knowledge Platform ( email )

International Environment House
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Geneva, 1219
Switzerland

HOME PAGE: http://www.greengrowthknowledge.org/

International Center for Climate Governance ( email )

Island of San Giorgio Maggiore 8
Venice, I-30124
Italy

HOME PAGE: http://www.iccgov.org/

Efrem Castelnuovo

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

Marzio Galeotti (Contact Author)

University of Milan - Department of Environmental Science and Policy (DESP) ( email )

2 via Celoria
I-20133 Milano
Italy
+39-2-50316470 (Phone)
+39-2-50316486 (Fax)

HOME PAGE: http://www.unimi.it/chiedove/cv/ENG/marzio_galeotti.pdf?1531977155891

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

via Rontgen
Milan, 20123
Italy
+39-2-58362340 (Phone)

HOME PAGE: http://www.iefe.unibocconi.it

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