Economics Dictionary of ArgumentsHome
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Robert N. Stavins on Carbon Price Strategies - Dictionary of Arguments
Stavins I 153 Carbon Pricing Policy Instruments/Carbon price strategies/Aldy/Stavins: We consider five generic policy instruments that could conceivably be employed by regional, national, or even subnational governments for carbon pricing, including carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reduction. (…) however [there are also] Stavins I 154 conventional environmental policy approaches, namely, command-and-control instruments, which have dominated environmental policy in virtually all countries over the past four decades. Command-and-Control Regulations: command-and-control regulatory standards are either technology based or performance based. Technology-based standards typically require the use of specified equipment, processes, or procedures. In the climate policy context, these could require firms to use particular types of energy-efficient motors, combustion processes, or landfill-gas collection technologies. Performance-based standards are more flexible than technology-based standards, specifying allowable levels of pollutant emissions or allowable emission rates, but leaving the specific methods of achieving those levels up to regulated entities. >Command-and-Control-Regulations/Stavins. Stavins I 155 Carbon Taxes: In principle, the simplest approach to carbon pricing would be through government imposition of a carbon tax (Metcalf, 2007)(1). The government could set a tax in terms of dollars per ton of CO2 emissions (or CO2-equivalent on greenhouse gas emissions) by sources covered by the tax, or—more likely—a tax on the carbon content of the three fossil fuels (coal, petroleum, and natural gas) as they enter the economy. The government could apply the carbon tax at a variety of points in the product cycle of fossil fuels, from fossil fuel suppliers based on the carbon content of fuel sales (“upstream” taxation/regulation) to final emitters at the point of energy generation (“downstream” taxation/regulation). >Carbon Taxation/Government policies, >Carbon Taxation/Fankhauser, >Carbon Taxation/Stavins. Stavins I 157 Cap-and-Trade Systems: A cap-and-trade system constrains the aggregate emissions of regulated sources by creating a limited number of tradable emission allowances—in sum equal to the overall cap—and requiring those sources to surrender allowances to cover their emissions (Stavins, 2007)(2). Cap-and-trade sets an aggregate quantity, and through trading, yields a price on emissions, and is effectively the dual of a carbon tax that prices emissions and yields a quantity of emissions as firms respond to the tax’s mitigation incentives. >Cap-and-Trade Systems/Stavins. Stavins I 159 Emission-Reduction-Credit Systems: An emission-reduction-credit (ERC) system delivers emission mitigation by awarding tradable credits for “certified” reductions. Generally, firms that are not covered by some set of regulations—be they command-and-control or market-based — may voluntarily participate in such systems, which serve as a source of credits that entities facing compliance obligations under the regulations may use. Individual countries can implement an ERC system without having a corresponding cap-and-trade program. While ERC systems can be self-standing, as in the case of the CDM [Clean Development Mechanism], governments can also establish them as elements of domestic cap-and-trade or other regulatory systems. These ERC systems—often referred to as offset programs—serve as a source of credits that can be used by regulated entities to meet compliance obligations under the primary system. >Emssion-Reduction-Credit System/Stavins Clean Energy Standards: The purpose of a clean energy standard is to establish a technology-oriented goal for the electricity sector that can be implemented cost-effectively (Aldy, 2011)(3). Under such standards, power plants generating electricity with technologies that satisfy the standard create tradable credits that they can sell to power plants that fail to meet the standard, thereby minimizing the costs of meeting the standard’s goal in a manner analogous to cap-and-trade. Stavins I 161 A clean energy standard represents a de facto free allocation of the right to emit greenhouse gases to the power sector. >Clean Energy Standards/Stavins. Eliminating Fossil Fuel Subsidies: Phasing out fossil fuel subsidies can represent significant progress toward “getting prices right” for fossil fuel consumption, especially in some developing countries, where subsidies are particularly large. Imposing a carbon price on top of a fuel subsidy will not lead to the socially optimal price for the fuel, but removing such subsidies can deliver incentives for efficiency and fuel switching comparable to implementing an explicit carbon price. >Eliminating Fossil Fuel Subsidies/Stavins. Cf. >Emission permits, >Emission reduction credits, >Emission targets, >Emissions, >Emissions trading, >Climate change, >Climate damage, >Energy policy, >Clean Energy Standards, >Climate data, >Climate history, >Climate justice, >Climate periods, >Climate targets, >Climate impact research, >Carbon price, >Carbon price coordination, >Carbon price strategies, >Carbon tax, >Carbon tax strategies. 1. Metcalf, G. E. (2007). A proposal for a U.S. carbon tax swap (The Hamilton Project Discussion Paper 2007-12). Washington, DC: Brookings Institution. 2. Stavins, R. N. (2007). A U.S. cap-and-trade system to address global climate change (The Hamilton Project Discussion Paper 2007-13). Washington, DC: The Brookings Institution. 3. Aldy, J. E. (2011). Promoting clean energy in the American power sector (The Hamilton Project Discussion Paper 2011-04). Washington, DC: The Hamilton Project. Robert N. Stavins & Joseph E. Aldy, 2012: “The Promise and Problems of Pricing Carbon: Theory and Experience”. In: Journal of Environment & Development, Vol. 21/2, pp. 152–180._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Stavins I Robert N. Stavins Joseph E. Aldy The Promise and Problems of Pricing Carbon: Theory and Experience 2012 |
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