Environmental Policy and Time Consistency : Emissions Taxes and Emissions Trading

Kennedy, Peter W. ; Laplante, Benoit

World Bank, Washington, DC

关键词: ABATEMENT COST;    ABATEMENT MEASURES;    AGGREGATE EMISSIONS;    AGGREGATE LEVEL;    AGGREGATE SUPPLY;   

DOI  :  10.1596/1813-9450-2351
RP-ID  :  WPS2351

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The authors examine policy problemsrelated to the use of emissions taxes, and emissionstrading, two market-based instruments for controllingpollution by getting regulated firms to adopt cleanertechnologies. By attaching an explicit price to emissions,these instruments give firms an incentive to continuallyreduce their volume of emissions. Command, and-controlemissions standards create incentives to adopt cleanertechnologies only up to the point where the standards are nolonger binding (at which point the shadow price on emissionsfalls to zero). But the ongoing incentives created by themarket-based instruments are not necessarily right, either.Time-consistency constraints on the setting of theseinstruments limit the regulator's ability to setpolicies that lead to efficiency in adopting technologyoptions. After examining the time-consistency properties ofa Pigouvian emissions tax, and of the emissions trading, theauthors find that: 1) If damage is linear, efficiency inadopting technologies involves either universal adoption ofthe new technology, or universal retention of the oldtechnology, depending on the cost of adoption. The firstbest tax policy, and the first-best permit-supply policy areboth time-consistent under these conditions. 2) If damage isstrictly convex, efficiency may require partial adoption ofthe new technology. In this case, the first-best tax policyis not time-consistent, and the tax rate must be adjustedafter adoption has taken place (ratcheting). Ratcheting willinduce an efficient equilibrium if there is a large numberof firms. If there are relatively few firms, ratchetingcreates too many incentives to adopt the new technology. 3)The first-best supply policy is time-consistent if there isa large number of firms. If there are relatively few firms,the first-best supply policy may not be time-consistent, andthe regulator must ratchet the supply of permits. With thispolicy, there are not enough incentives for firms to adoptthe new technology. The results do not strongly favor onepolicy instrument over the other, but if the point of anemissions trading program is to increase technologicalefficiency, it is necessary to continually adjust the supplyof permits in response to technological change, even whenthe damage is linear. This continual adjustment is notneeded for an emissions tax when damage is linear, which maygive emissions taxes an advantage over emissions trading.