Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade

This paper provides a first analysis of a “policy bloc” of fossil fuel importers which implements an optimal climate policy, faces a (non-policy) fringe of other fuel importers, and an exporter bloc, and purchases offset from the fringe. We compare a carbon tax and a cap-and-trade scheme for the pol...

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Main Author:	Strand, Jon
Format:	Journal Article
Language:	en_US
Published:	Elsevier 2013
Subjects:	climate policy carbon taxes cap-and-trade schemes carbon emissions strategic trade policy
Online Access:	http://hdl.handle.net/10986/13460

id	okr-10986-13460
recordtype	oai_dc
spelling	okr-10986-134602017-12-13T12:25:57Z Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade Strand, Jon climate policy carbon taxes cap-and-trade schemes carbon emissions strategic trade policy This paper provides a first analysis of a “policy bloc” of fossil fuel importers which implements an optimal climate policy, faces a (non-policy) fringe of other fuel importers, and an exporter bloc, and purchases offset from the fringe. We compare a carbon tax and a cap-and-trade scheme for the policy bloc, in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe. The policy bloc is shown to prefer a tax over a cap, since only a tax reduces the fuel export price and by more when the policy bloc is larger. Offsets are also more favorable to the policy bloc under a tax than under a cap. The optimal offset price under a carbon tax is below the tax rate, while under a cap and free quota trading the offset price must equal the quota price. The domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small. When the policy bloc is larger, the offset price can be higher under a cap. Fringe countries gain by mitigation in the policy bloc, more under a carbon tax since the fuel import price is lower. 2013-05-20T18:57:35Z 2013-05-20T18:57:35Z 2013-04-02 Journal Article Journal of Environmental Economics and Management 0095-0696 http://hdl.handle.net/10986/13460 en_US Journal of Environmental Economics and Management; CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ World Bank Elsevier Publications & Research :: Journal Article Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	World Bank
building	World Bank Open Knowledge Repository
collection	Online Access
language	en_US
topic	climate policy carbon taxes cap-and-trade schemes carbon emissions strategic trade policy
spellingShingle	climate policy carbon taxes cap-and-trade schemes carbon emissions strategic trade policy Strand, Jon Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade
relation	Journal of Environmental Economics and Management;
description	This paper provides a first analysis of a “policy bloc” of fossil fuel importers which implements an optimal climate policy, faces a (non-policy) fringe of other fuel importers, and an exporter bloc, and purchases offset from the fringe. We compare a carbon tax and a cap-and-trade scheme for the policy bloc, in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe. The policy bloc is shown to prefer a tax over a cap, since only a tax reduces the fuel export price and by more when the policy bloc is larger. Offsets are also more favorable to the policy bloc under a tax than under a cap. The optimal offset price under a carbon tax is below the tax rate, while under a cap and free quota trading the offset price must equal the quota price. The domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small. When the policy bloc is larger, the offset price can be higher under a cap. Fringe countries gain by mitigation in the policy bloc, more under a carbon tax since the fuel import price is lower.
format	Journal Article
author	Strand, Jon
author_facet	Strand, Jon
author_sort	Strand, Jon
title	Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade
title_short	Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade
title_full	Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade
title_fullStr	Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade
title_full_unstemmed	Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade
title_sort	strategic climate policy with offsets and incomplete abatement : carbon taxes versus cap-and-trade
publisher	Elsevier
publishDate	2013
url	http://hdl.handle.net/10986/13460
_version_	1610775310180024320

Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade

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