Combining rate-based and cap-and-trade emissions policies

Carolyn Fischer*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Rate-based emissions policies (like tradable performance standards, TPS) fix average emissions intensity, while cap-and-trade (CAT) policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider several policy options to offset the expansion, including a tax, an "exchange rate" to adjust for relative permit values, output-based allocation (OBA) for the rate-based sector, and tightening the cap. A range of combinations of tighter allocations could improve situations in both sectors with trade while holding emissions constant.

Original languageEnglish
Pages (from-to)S89-S103
JournalClimate Policy
Volume3
Issue numberSUPP 2
DOIs
Publication statusPublished - Dec 2003

Keywords

  • Climate
  • Emissions trading
  • Greenhouse gases
  • Permit allocation
  • Relative targets
  • Tradable performance standards

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