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- Title
COST CONTAINMENT IN CLIMATE CHANGE POLICY: ALTERNATIVE APPROACHES TO MITIGATING PRICE VOLATILITY.
- Authors
Metcalf, Gilbert E.
- Abstract
Cap-and-trade systems are emerging as the front-running policy choice to address climate change concerns in many countries. One of the apparent attractions of this approach is the ability to achieve hard limits on emissions over a control period. The cost of achieving this certainty on emission limits is price volatility. I discuss and evaluate various approaches within cap-and-trade systems to reduce price volatility. A fundamental tradeoff exists between certainty of emission limits and price volatility. A pure carbon tax sacrifices certainty of emission limits in favor of price stability. I discuss how a hybrid carbon tax can be designed to achieve a balance between price stability and emissions certainty. This hybrid, dubbed the Responsive Emissions Autonomous Carbon Tax (REACT), combines the short-run price stability of a carbon tax with the long-run certainty of emission reductions over a control period.
- Subjects
EMISSIONS trading; ENVIRONMENTAL policy; ENVIRONMENTAL impact charges; CARBON taxes; CLIMATE change; CARBON dioxide mitigation; EMISSION control
- Publication
Virginia Tax Review, 2009, Vol 29, Issue 2, p381
- ISSN
0735-9004
- Publication type
Article