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Tradable Credit Markets for Intensity Standards

47 Pages Posted: 9 Jun 2015 Last revised: 26 Jan 2018

Ivan Rudik

Cornell University - Dyson School of Applied Economics and Management

Date Written: January 25, 2018

Abstract

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

Rudik, Ivan, Tradable Credit Markets for Intensity Standards (January 25, 2018). Available at SSRN: https://ssrn.com/abstract=2615918 or http://dx.doi.org/10.2139/ssrn.2615918

Ivan Rudik (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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