Tradable Credit Markets for Intensity Standards
47 Pages Posted: 9 Jun 2015 Last revised: 26 Jan 2018
Date Written: January 25, 2018
Many environmental standards are expressed in terms of intensity rather than absolute levels. In some cases, intensity standards are associated with credit trading markets to mitigate compliance costs of policy. I develop a jurisdictional model of credit trading under an intensity standard, framed in terms of a Renewable Portfolio Standard for electric utilities. I find that jurisdictions of firms with high costs of compliance may actually be better off by not allowing inter-jurisdictional credit trading. Counterintuitively, increasing the stringency of the intensity standard under credit trading can have the opposite of the intended effect and decrease renewable electricity generation.
Keywords: energy, intensity standard, renewable portfolio standards, pollution, green preferences, federalism
JEL Classification: H70, Q40, Q48
Suggested Citation: Suggested Citation