research
Is there a more effective way to reduce carbon emissions?
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Abstract
Whilst emissions trading systems are widely held to be able to deliver lowest-cost abatement, uncertainty reduces their effectiveness. We consider a new scheme, the Tender-Price Allocation Mechanism, which focuses carbon factor cost expenditure on abatement rather than just revenue transfers. It is a scheme that reduces uncertainty and the costs of uncertainty for both firms and regulators. It also incorporates a suite of incentives that compensates for the externalities associated with abatement investment.