Price floors for emissions trading

Peter John Wood; Frank Jotzo

doi:10.1016/j.enpol.2011.01.004

Price floors for emissions trading

Peter John Wood^*, Frank Jotzo

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

87 Citations (Scopus)

Abstract

Price floors in greenhouse gas emissions trading schemes can guarantee minimum abatement efforts if prices are lower than expected, and they can help manage cost uncertainty, possibly as complements to price ceilings. Provisions for price floors are found in several recent legislative proposals for emissions trading. Implementation however has potential pitfalls. Possible mechanisms are government commitments to buy back permits, a reserve price at auction, or an extra fee or tax on acquittal of emissions permits. Our analysis of these alternatives shows that the fee approach has budgetary advantages and is more compatible with international permit trading than the alternatives. It can also be used to implement more general hybrid approaches to emissions pricing.

Original language	English
Pages (from-to)	1746-1753
Number of pages	8
Journal	Energy Policy
Volume	39
Issue number	3
DOIs	https://doi.org/10.1016/j.enpol.2011.01.004
Publication status	Published - Mar 2011

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10.1016/j.enpol.2011.01.004

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AB - Price floors in greenhouse gas emissions trading schemes can guarantee minimum abatement efforts if prices are lower than expected, and they can help manage cost uncertainty, possibly as complements to price ceilings. Provisions for price floors are found in several recent legislative proposals for emissions trading. Implementation however has potential pitfalls. Possible mechanisms are government commitments to buy back permits, a reserve price at auction, or an extra fee or tax on acquittal of emissions permits. Our analysis of these alternatives shows that the fee approach has budgetary advantages and is more compatible with international permit trading than the alternatives. It can also be used to implement more general hybrid approaches to emissions pricing.

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Price floors for emissions trading

Abstract

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