Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off?
Tradable permit markets for carbon dioxide (C02) emissions respond to short-run fluctuations in economic activity. To provide stability, both price and quantity interventions have been proposed. This paper focuses on the relative performance of fixed versus intensity allowances in the presence of both productivity and energy price uncertainty. Both instruments achieve the same steady-state emissions reduction target of 20 percent, which is similar to the current policy proposals, and the regulator then chooses the allowance policy that has the lowest expected abatement cost. A standard real business cycle (RBC) model is used to solve for the expected abatement cost under both policies. Expected cost outcomes are compared using data from the U. S. economy as the baseline scenario. Unlike previous studies, this paper's results show that, under a reasonable model calibration, fixed allowances outperform intensity allowances by a cost difference of as much as 30 percent.
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Inter-American Development Bank
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Subjects: | Climate Finance, Productivity, E32 - Business Fluctuations • Cycles, Q54 - Climate • Natural Disasters and Their Management • Global Warming, Q58 - Government Policy, IDB-WP-450, |
Online Access: | http://dx.doi.org/10.18235/0011514 https://publications.iadb.org/en/intensity-based-permit-quotas-and-business-cycle-does-flexibility-pay |
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dig-bid-node-113222024-05-30T20:30:06ZIntensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? 2013-12-13T00:00:00+0000 http://dx.doi.org/10.18235/0011514 https://publications.iadb.org/en/intensity-based-permit-quotas-and-business-cycle-does-flexibility-pay Inter-American Development Bank Climate Finance Productivity E32 - Business Fluctuations • Cycles Q54 - Climate • Natural Disasters and Their Management • Global Warming Q58 - Government Policy IDB-WP-450 Tradable permit markets for carbon dioxide (C02) emissions respond to short-run fluctuations in economic activity. To provide stability, both price and quantity interventions have been proposed. This paper focuses on the relative performance of fixed versus intensity allowances in the presence of both productivity and energy price uncertainty. Both instruments achieve the same steady-state emissions reduction target of 20 percent, which is similar to the current policy proposals, and the regulator then chooses the allowance policy that has the lowest expected abatement cost. A standard real business cycle (RBC) model is used to solve for the expected abatement cost under both policies. Expected cost outcomes are compared using data from the U. S. economy as the baseline scenario. Unlike previous studies, this paper's results show that, under a reasonable model calibration, fixed allowances outperform intensity allowances by a cost difference of as much as 30 percent. Inter-American Development Bank Kwok Ping Tsang Gregory S. Amacher Olli-Pekka Kuuselaa Working Papers application/pdf IDB Publications The Caribbean Central America South America en |
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Climate Finance Productivity E32 - Business Fluctuations • Cycles Q54 - Climate • Natural Disasters and Their Management • Global Warming Q58 - Government Policy IDB-WP-450 Climate Finance Productivity E32 - Business Fluctuations • Cycles Q54 - Climate • Natural Disasters and Their Management • Global Warming Q58 - Government Policy IDB-WP-450 |
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Climate Finance Productivity E32 - Business Fluctuations • Cycles Q54 - Climate • Natural Disasters and Their Management • Global Warming Q58 - Government Policy IDB-WP-450 Climate Finance Productivity E32 - Business Fluctuations • Cycles Q54 - Climate • Natural Disasters and Their Management • Global Warming Q58 - Government Policy IDB-WP-450 Inter-American Development Bank Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? |
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Tradable permit markets for carbon dioxide (C02) emissions respond to short-run fluctuations in economic activity. To provide stability, both price and quantity interventions have been proposed. This paper focuses on the relative performance of fixed versus intensity allowances in the presence of both productivity and energy price uncertainty. Both instruments achieve the same steady-state emissions reduction target of 20 percent, which is similar to the current policy proposals, and the regulator then chooses the allowance policy that has the lowest expected abatement cost. A standard real business cycle (RBC) model is used to solve for the expected abatement cost under both policies. Expected cost outcomes are compared using data from the U. S. economy as the baseline scenario. Unlike previous studies, this paper's results show that, under a reasonable model calibration, fixed allowances outperform intensity allowances by a cost difference of as much as 30 percent. |
author2 |
Kwok Ping Tsang |
author_facet |
Kwok Ping Tsang Inter-American Development Bank |
format |
Working Papers |
topic_facet |
Climate Finance Productivity E32 - Business Fluctuations • Cycles Q54 - Climate • Natural Disasters and Their Management • Global Warming Q58 - Government Policy IDB-WP-450 |
author |
Inter-American Development Bank |
author_sort |
Inter-American Development Bank |
title |
Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? |
title_short |
Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? |
title_full |
Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? |
title_fullStr |
Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? |
title_full_unstemmed |
Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? |
title_sort |
intensity-based permit quotas and the business cycle: does flexibility pay off? |
publisher |
Inter-American Development Bank |
url |
http://dx.doi.org/10.18235/0011514 https://publications.iadb.org/en/intensity-based-permit-quotas-and-business-cycle-does-flexibility-pay |
work_keys_str_mv |
AT interamericandevelopmentbank intensitybasedpermitquotasandthebusinesscycledoesflexibilitypayoff |
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1809107007632834560 |