Price Floors for Emissions Trading
Date
04.12.2009
04.12.2009
Authors
Peter John Wood, Frank Jotzo
JEL Code
Q58
Q58
Keywords:
Price Floor, Price Ceiling, Carbon Tax, Emissions Trading, Carbon Pricing, Price and Quantity Controls, Waxman-Markey Bill
Price Floor, Price Ceiling, Carbon Tax, Emissions Trading, Carbon Pricing, Price and Quantity Controls, Waxman-Markey Bill
Publisher
Climate Change and Sustainable Development
Climate Change and Sustainable Development
Editor
Carlo Carraro
Carlo Carraro
Price floors in greenhouse gas emissions trading schemes can have advantages for technological innovation, price volatility, and management of cost uncertainty, but implementation has potential pitfalls. We argue that the best mechanism for implementing a price floor is to have firms pay an extra fee or tax. This has budgetary advantages and is more compatible with international permit trading than alternative approaches that dominate the academic and policy debate. The fee approach can also be used to implement more general hybrid approaches to emissions pricing.