Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171676
Authors: 
Abrell, Jan
Rausch, Sebastian
Year of Publication: 
2016
Series/Report no.: 
Economics Working Paper Series 16/233
Abstract: 
This paper analyzes hybrid emissions trading systems (ETS) under partitioned environmental regulation when firms’ abatement costs and future emissions are uncertain. We show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against differences in marginal abatement costs across partitions. Price bounds are more efficient than abatement bounds as they also use information on firms’ abatement technologies while abatement bounds can only address emissions uncertainty. Using a numerical stochastic optimization model with equilibrium constraints for the European carbon market, we find that introducing hybrid policies in EU ETS reduces expected excess abatement costs of achieving targeted emissions reductions under EU climate policy by up to 89 percent. We also find that under partitioned regulation there is a high likelihood for hybrid policies to yield sizeable ex-post cost reductions.
Subjects: 
Emissions trading
Partitioned environmental regulation
Uncertainty
Prices
Quantities
EU ETS
JEL: 
H23
Q54
C63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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