Regulating Greenhouse Gas Emissions by An Inter-Temporal Policy Mix: An Experimental Investigation

Emissions taxes impose a fixed price on emissions, whereas under tradable permit schemes prices emerge in the secondary permit market. The delayed price discovery under tradable permits creates uncertainty about the future cost of compliance that liable emitters face. To mitigate this uncertainty, some jurisdictions have designed policies to regulate GHG with an emissions tax that is in force for several years, subsequently transforming into a tradable permit scheme. This paper examines the effects that this staged transition – from no regulation to a regulation by a tax, to a regulation by tradable permits – has on abatement investment, quantity of emissions, permit prices and overall regulation efficiency. The effects of the inter-temporal mix of policy instruments are compared to the effects of single policy instrument: a tax-only, and a tradable permit-only regulation. Our investigation relied on laboratory economics methods to test economic behaviour under these three policy regimes. We find that a staged transition from a tax to a tradable permit scheme results in more socially desirable outcomes on a range of criteria when compared to a regulation based solely on tradable permits, and specifically, it improves ability to make better abatement investment decisions

Modelling a mixed system of air pollution fee and tradable permits for controlling nitrogen oxide: a case study of Taiwan *

A mixed-integer non-linear programming model that minimises the total regulatory costs of controlling nitrogen oxide is used to investigate how a newly proposed permit trading scheme in Taiwan, which incorporates the features of banking and a non-one-to-one trading ratio, may affect firms' emission reduction strategies and permit trading decisions. Compared to the previous regulation where only an air pollution fee is used, the new regulation that requires a reduction in emissions by 10 per cent from the emission level in the year 2000 for a 5 year period will increase the costs by 77 per cent, which is equivalent to US$9.87 million. The design of banking and the increasing returns to scale characteristic of pollution control among firms might lead to an uneven reduction in emissions in each year. Setting a lower reservation rate for banking would, however, help maintain a more stable environmental quality without a significant loss to the government in terms of air pollution fee revenue. Copyright 2007 The Author Journal compilation 2007 Australian Agricultural and Resource Economics Society Inc. .

Technology adoption decisions under a mixed regulatory system of tradable permits and air pollution fees for the control of Total Suspended Particulates in Taiwan

Air pollution fee, Tradable permits, Mixed-integer non-linear programming, Banking, Total Suspended Particulates, Q580, Q530, Q520,