Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
DRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety ValveWing*', Lisa Jakobovits* 'MET Joint Program for the Science and Policy of Global Change, Massachusetts Institute of Technology 2Dept. of Geography & Environment, Boston UniversityKeywords: Uncertainty, climate change, instrument choice, safety valve, intensity target.AbstractCurrent proposals for gr Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveeenhouse gas emissions regulations in the United States mainly take the form of emissions caps with tradable permits. Since Weitzman’s (1974) study ofSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
prices vs. quantities, economic theory predicts that a price instrument is superior under uncertainty in the case of stock pollutants. Given the geneDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveintensity targets. We extend the Weitzman model to derive an analytical expression for the expected net benefits of a hybrid instrument under uncertainty. We compare this expression to one developed by Newell and Pizer (2006) for an intensity target, and show the theoretical minimum correlation betw Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveeen GDP and emissions required for an intensity target to be preferred over a hybrid. We test the predictions by performing Monte Carlo simulation onSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
a computable general equilibrium model of the U.S. economy. The results are similar, and we show with the numerical model that when marginal abatementDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety ValveRIBUTE1IntroductionAs many countries prepare to begin their implementation of the Kyoto Protocol (Ellerman and Buchner, 2006) and the United States begins more serious discussions of domestic climate policy (Paltsev et al, 2007) and potential future international frameworks (Stolberg. 2007), interes Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valvet in alternative regulatory instruments for greenhouse gas emissions is increasing. Because greenhouse gases are stock pollutants, we expect their marSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
ginal benefits for a given decision period (1-5 years) to have a negligible slope. The seminal work by Weitzman (1974, 1978) and extended by Pizer (20DRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveal benefit is superior to the optimal emissions cap.Given the experience with an attempt at a BTU tax under the Clinton Administration, the prevailing view is that a carbon tax is politically infeasible, at least in the United States (Washington Post, 2007; Newell and Pizer, 2006). This political co Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valvenstraint on instrument choice, combined with the significant uncertainty in abatement costs under a pure quantity instrument, has generated interest iSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
n two suboptimal instruments that are superior to quantity instruments in the presence of uncertainty: a hybrid or safety valve instrument, and an indDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valves some set trigger price, an unlimited number of permits are auctioned off at the trigger price (Pizer 2005; Jacoby and Ellerman, 2005), thus reverting to a carbon tax. An indexed cap is one in which the quantity of pennits allocated is set not to an absolute emissions target, but rather is determin Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveed relative to some other measurable2DRAFT - DO NOT CITE OR DISTRIBUTEquantity, for example GDP, which is correlated with emissions (Newell and Pizer,Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
2006; Elleiman and Sue Wing, 2003: Sue Wing Ct al., 2006).Weilzman (1974) originally developed an expression for the relative advantage OÍ prices verDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve under uncertainty is superior to a pure quantity instrument and as good as or boner than a pure price instrument. There have been several studies of the behavior ol an indexed cap or intensity target under uncertainty and its relative advantages and disadvantages to quantity and price instruments, Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveincluding Newell and Pizer (2006), Quirion (2005). and Sue Wing et al (2006). In general, the advantages of index cap have been shown in the above stuSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
dies to be a function of the correlation between emissions and the indexed quantity, as well as the relative slopes of maiginal costs and benefits, anDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve this choice between second-best instruments is one key element in the current debate (Paltsev el al, 2007), it is useful to demonstrate both theoretically and empirically when indexed caps should be preferred to hybrid instruments or the reverse.In this study, we develop a Rile that indicates when Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveindexed caps will be the preferred instrument for regulating a stock pollutant under uncertainty, in terms of expected net benefits, to a safety valveSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
instrument. We use die theoretical model of an externality developed by Weit/man (1974) and extended by Newell and Pi/er (2006), which we present in DRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety ValveAFT - DO NOT CITE OR DISTRIBUTEexpected net benefits under this optimal hybrid policy. We then compare this result to the expression derived by Newell and Pizer for an indexed cap, and derive a general Hile for when the indexed cap is preferred over the safety valve. In Section 4, we illustrate the Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveresults by conducting uncertainty analysis on a static computable general equilibrium (CGE) model of the US economy, and show that with the non-linearSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
marginal costs of the CGE model that the hybrid is even more preferable. Section 5 gives conclusions and discussion.2Model of Pollution ExternalityWeDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveected optimal abatement quantity target q*. Costs and benefits, respectively, are defined as:-1C(q) = c0 + (q -e:)(q-q’) + ~(q-qJý-2B(q) = ^o+b1(q-q')-y(q-q')2We assume that c2 > Oand b2 2 0; i.e., costs are strictly convex and benefits are weakly concave. Ỡ. is a random shock to costs with expectat Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveion 0 and variance ơ'c . As inNewell and Pizer, we define such that a positive shock reduces the marginal cost of producing q.Taking (he derivative ofSecond-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valve
net benefits, taking the expectation, and setting to zero, we obtain the conditions for the optimal quantity:-3b1-b2(q-q') = c1+DRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue W Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety Valveal marginal benefits at that emissions level.The expected net benefits with an emission cap of q = q' is:-4E{NBq} = b0-c0For the price instrument, emissions would be reduced up to where marginal costs equal the tax:-5p = Second-Best Instruments for Near-Term Climate Policy Intensity Targets vs. the Safety ValveDRAFT - DO NOT CITE OR DISTRIBUTESecond-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve Mort Webster', Ian Sue WGọi ngay
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