Smart Cap

Author:

Karp Larry1,Traeger Christian2

Affiliation:

1. Department of Agricultural & Resource Economics , UC Berkeley , USA

2. Department of Economics, University of Oslo, Norway; ifo Institute , Munich , Germany

Abstract

Abstract Policymakers’imperfect knowledge about firms’ abatement costs leads to inefficient regulation, reducing the welfare gains from carbon markets around the world. We introduce a “smart” cap and trade system that eliminates these costs. This cap responds endogenously to technology or macroeconomic shocks, relying on the market price of certificates to aggregate information. It allows policy makers to modify existing institutions to achieve more efficient emissions reductions. The paper also shows that the slow diffusion of technology innovations typically makes the optimal carbon price a much steeper function of emissions than suggested by the Social Cost of Carbon.

Funder

AES

Research Council of Norway

National Science Foundation

Publisher

Oxford University Press (OUP)

Reference54 articles.

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2. Dynamic Regulation Design without Payments: The Importance of Timing;Boleslavsky;Journal of Public Economics,2014

3. “Quantities and Prices: Price-Responsive Allocance Supply in Environmental Markets.”;Burtraw,2020

4. “Information Aggregation in Emissions Markets with Abatement.”;Cantillon;Annals of Economics and Statistics,2018

5. “Fisherman Quotas: A Tentative Suggestion for Domestic Management.”;Christy,1973

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1. Taxes versus quantities reassessed;Journal of Environmental Economics and Management;2024-05

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