cover image: A cap and trade system for reducing greenhouse gas emissions in BC

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A cap and trade system for reducing greenhouse gas emissions in BC

24 Nov 2008

It is not obvious that the extension of a cap and trade to the upstream fuels used for transportation and by residential and commercial sectors will be equivalent to the carbon tax in terms of impact on prices to consumers. [...] The broader the coverage of a cap and trade system therefore, the more likely the system is efficient. [...] These impacts are dependent on the ability of the allowance holder to pass along to the consumer the explicit or implicit price of the allowance (an allowance not sold is valued at the market price or future price of the allowance). [...] While research has shown that a market-based policy significantly reduces the cost of meeting environmental targets compared to command and control regulation (e.g., emission standards), the more uncertain the pricing component of the market-based policy, the smaller the gap in compli- ance costs between the policy regimes. [...] Safety values—price ceilings and floors: If the regulator specifies the minimum and maximum price of an allowance, there is of course more certainty for the emitters, but less scope for the market to ‘work’ in the sense that there is no guarantee that the supply of permits will equal the demand for permits within the range set by the floor and ceiling.
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Authors

Olewiler, Nancy D

Pages
20
Published in
Canada

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