Abstract
For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy on all variables except for the shadow value of the emissions constraint. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy.
Original language | English |
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Pages (from-to) | 352-366 |
Number of pages | 15 |
Journal | Journal of Environmental Economics and Management |
Volume | 62 |
Issue number | 3 |
DOIs | |
Publication status | Published - Nov 2011 |
Funding
Support from EPA-STAR and NSF/IGERT Program grant DGE-0114437 is gratefully acknowledged
Keywords
- Business cycle
- Cap-and-trade
- Emissions tax
- Intensity target