linking permit markets multilaterally we formally study the determinants magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets we provide two novel decomposition results for these gains characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed using the paris agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking we quantify the efficiency gains we find that the computed gains can be sizable and are split roughly equally between effort and risk sharing

bankable permits for the control of environmental pollution abstract intertemporal trading of emission permits banking is often identified as one of three promising market mechanisms for controlling pollution along with averaging and trading surprisingly the efficiency properties of permit banking systems have not been investigated using a simple optimal control model this paper investigates firms incentives for banking or borrowing emission permits and compares the emission and output streams firms would choose with the socially optimal solution we find that in many cases firms will suboptimally choose excessive damage and output levels in early periods and correspondingly too few in later periods if given the opportunity to freely move emissions between time periods we propose a simple alternative trading scheme we term modified banking that counters this problem and should be no more difficult for an environmental authority to implement than a straigth banking system

unintended consequences of price controls an application to allowance markets abstract price controls established in a cap and trade allowance market are intended to reduce cost uncertainty by constraining allowance prices between a ceiling and floor however they could provide opportunities for strategic actions by firms that would lower government revenue and increase emissions in particular when the ceiling price is supported by introducing new allowances into the market firms could choose to buy allowances at the ceiling price regardless of the prevailing market price in order to lower the equilibrium price of all allowances those purchases could either be transacted by firms intending to manipulate the market price or be induced through the introduction of inaccurate information about the cost of emissions abatement theory and simulations using allowance elasticity estimates for u s firms suggest that the manipulation could be profitable under the stylized setting and assumptions evaluated in the paper although in practice many other conditions will determine its use

comparing policies to confront permit over allocation abstract instability in cap and trade markets particularly with respect to permit price collapses has been an area of concern for regulators to that end several policies including hybrid price quantity mechanisms and the newly introduced market stability reserve msr systems have been introduced and even implemented in some cases i develop a stochastic dynamic model of a cap and trade system parameterized to values relevant to the european union s emission trading system eu ets to analyze the performance of these policies aimed at adding stability to the system or at least at reducing perceived over allocations of permits results suggest that adaptive allocation mechanisms such as a price collar or msr can reduce permit over allocations and permit price volatility in a more cost effective manner than simply reducing scheduled permit allocations however it is also found that the performance of these adaptive allocation policies and in particular the msr are greatly affected by assumed discount rates and policy parameters

price discrimination and investment incentives abstract we examine a model of a monopolist selling to two segments of consumers with different preferences for quality we show that if the firm is unable to price discriminate between the segments then there is less investment in quality we find that both consumer segments and society overall may suffer if the firm is unable to price discriminate we extend the model to duopoly competition and find that our results still hold

reprint of price and quantity collars for stabilizing emission allowance prices laboratory experiments on the eu ets market stability reserve abstract we report on laboratory experiments with financially motivated participants comparing alternative proposals for managing the time path of emission allowance prices in the face of random firm specific and market level structural shocks market outcome measures such as social surplus and price variability are improved by the use of a price collar auction reserve price and soft price cap comparable performance enhancements are not observed with the implementation of a quantity collar that adjusts auction quantities in response to privately held inventories of unused allowances in some specifications the quantity collar performed worse than no stabilization policy at all the experiment implemented a specific set of structural elements and extrapolation to other settings should be done with caution nevertheless an examination of the observed behavioral patterns and deviations from optimal behavior suggests that a price collar has an important although perhaps not exclusive role to play in constructing an effective market stability policy

a symmetric safety valve abstract how to set policy in the presence of uncertainty has been central in debates over climate policy concern about costs has motivated the proposal for a cap and trade program for carbon dioxide with a safety valve that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level we find two significant problems both stemming from the asymmetry of an instrument that mitigates only against a price increase one is that most important examples of price volatility in cap and trade programs have occurred not when prices spiked but instead when allowance prices collapsed second a single sided safety valve may have unintended consequences for investment we illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one sided approach

dynamic supply adjustment and banking under uncertainty in an emission trading scheme the market stability reserve abstract we study the impact of a supply management mechanism smm similar to the market stability reserve proposed in 2015 which preserve the overall emissions cap and we comment on the recent cap changing amendments we provide an analytical description of the conditions under which an smm alters the emissions abatement paths affecting the expected length of the banking period and its variability while abatement strategies of risk neutral firms solely depend on the former for risk averse firms changes in the latter would lead to higher risk premia accelerated depletion of the bank and consequently further reduction of abatement and allowance prices cancellation of part of the reserve could partially outweigh the effect on risk premia sustaining allowance prices

incentive based policy design for pollution control and biodiversity conservation a review this paper provides a succinct review of the main developments in the literature on incentive based policy mechanisms in the contexts of pollution control and biodiversity conservation dating from the early beginnings of the science in the 1960s a focal point in the review is on the design features of these policy mechanisms key developments in policy design were originally established in controlling externalities arising from pollution and have since been extended to policy design tailored towards biodiversity conservation special emphasis is given to the spatial characteristics of the environmental problems underlying both pollution control and biodiversity conservation the paper concludes by drawing some lessons and setting out elements of a future research agenda in both policy domains

mitigating america s demographic dilemma by pre funding social security abstract financing social security benefits at current levels implies significant increases in payroll taxes within the next 20 years under current us demographic developments using a general equilibrium overlapping generations model with realistic patterns of fertility and lifespan extension this study shows that future generations would be harmed during the demographic transition due to rising payroll taxes which crowd out savings and slow real wage growth below the rate of technological progress a faster rate of technological progress would mitigate only some of the payroll tax increase and its economic consequences but could not overcome them addressing the financing problem by reducing social security benefits as needed or by raising the eligibility age for benefits imposes major welfare losses on current or near term retirees by contrast a pre funding of social security financed with consumption taxes more evenly spreads the welfare losses across generations and it helps future generations especially the poor by stimulating capital formation

cap and trade programs under delayed compliance consequences of interim injections of permits virtually every analysis of cap and trade programs assumes that rms must surrender permits as they pollute however no program existing or proposed requires such continual compliance some e g the acid rain program limiting so2 emissions require compliance once a year others e g the regional greenhouse gas initiative limiting co2 emissions require compliance every three years the paths of emissions and permit prices would be invariant to compliance timing holland moore 2013 if the government never injected additional permits between successive compliance dates however virtually all emissions trading programs require such injections through either 1 interim permit auctions or 2 sales from cost containment reserves intended to cap permit prices in such cases analyses which abstract from delayed compliance may mislead policy makers for example a cost containment reserve judged sucient to cap prices at a ceiling over a year may sell out in a single day

the impact of chinese carbon emission trading scheme ets on low carbon energy lce investment china is planning to introduce emission trading scheme ets to decrease co2 emission as low carbon energy lce will play a pivotal role in reducing co2 emissions our paper is to assess the extent and the conditions under which a carbon ets can deliver lce investment in china we chose wind technology as a case study and a real option based model was built to explore the impact of a number of variables and design features on investment decisions e g carbon and electricity price carbon market risk carbon price floor and ceiling and on grid ratio we compute critical values of these variables and features and explore trade offs among them according to our work a carbon ets has a significant effect on wind power plant investment although it cannot support investment in wind power on its own carbon price stabilization mechanisms such as carbon price floor can significantly improve the effect of carbon ets but the critical floor to support investment is still much higher than the carbon price in china pilot etss our results show that other policy measures will be needed to promote low carbon energy development in china

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

prices versus quantities versus hybrids in the presence of co pollutants we investigate the optimal regulation of a pollutant given its abatement interaction with another pollutant under asymmetric information about firms abatement costs we take a policy relevant second best approach by assuming that the co pollutant is regulated exogenously but perhaps not efficiently our focus is on optimal policy choice in this setting and we derive rules for determining whether a pollutant should be regulated with an emissions tax an emissions market or a market with price controls given the regulation of its co pollutant we find that the policy choice for a pollutant is unaffected by its interaction with a co pollutant that is controlled with a fixed number of tradable permits because changes in emissions of the primary pollutant do not affect aggregate emissions of the co pollutant however when a co pollutant is controlled with a tax the policy choice for the primary pollutant must account for its effect on expected co pollutant damage through changes in the variance of co pollutant emissions consequently standard conclusions about the environmental policy choice problem must be modified in this case our results have important implications for designing policies for greenhouse gases under uncertainty

price controls and banking in emissions trading an experimental evaluation we present results from laboratory emissions markets designed to investigate the effects of price controls and permit banking on limiting permit price risk while both instruments reduce between period price volatility and within period price dispersion combining price controls and permit banking yields important benefits banking alone produces high permit prices in earlier periods that fall over time but the combined policy produces lower initial prices and lower volatility however banking price controls and the combination all produce higher between period emissions volatility hence for emissions markets that seek to control flow pollutants with strictly convex damages efforts to limit permit price risk can result in higher expected damage

the economics of pollution permit banking in the context of title iv of the 1990 clean air act amendments abstract this paper presents a model of the collective emission permit banking behavior of electricity generating units affected by title iv of the clean air act amendments of 1990 a rigorous treatment of the constraint that pollution permits cannot be borrowed from future allocations is introduced this approach enables an analysis of the impact of future changes in electricity demand regulations and technologies on the present permit price and emissions level the effect of uncertainty on the banking behavior is also explored

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

politics matters regulatory events as catalysts for price formation under cap and trade this paper investigates how the political process of making cap adjustments has shaped market outcomes in the world s largest cap and trade system the eu ets capitalizing on an event study method that incorporates an econometric technique designed to handle parameter instability and model uncertainty we assess the news implied price response to 29 hand collected announcements about the eu ets supply schedule our findings document a high market responsiveness to political events and reveal how market participants view the evolution of cap stringency in the light of a particular announcement we provide evidence that a sequence of strong event induced price drops evolve in the backloading decision process which is consistent with the interpretation that market participant s confidence in the political support for reform and probably the eu ets in general has been unsettled we also document positive price reactions to the 2020 and 2030 policy packages but not the 2050 roadmaps

intertemporal permit trading for the control of greenhouse gas emissions this paper integrates two themes in the intertemporal permitliterature through the construction of an intertemporal bankingsystem for a pollutant that creates both stock and flow damages a permit banking system for the special case of a pollutant thatonly causes stock damages is also developed this latter simpler case corresponds roughly to the greenhouse gas emissionreduction regime proposed by the u s department of state as ameans of fulfilling the u s commitment to the frameworkconvention on climate change this paper shows that environmentalregulators can achieve the socially optimal level of emissionsand output through time by setting the correct total sum ofallowable emissions and specifying the correct intertemporaltrading ratio for banking and borrowing for the case ofgreenhouse gases we show that the optimal growth rate of permitprices and therefore the optimal intertemporal trading rate hasthe closed form solution equal to the ratio of current marginalstock damages to the discounted future value of marginal stockdamages less the decay rate of emissions in the atmosphere given a non optimal negotiated emission path we then derive apermit banking system that has the potential to lower net socialcosts by adjusting the intertemporal trading ratio taking intoaccount the behavior of private agents we use a simplenumerical simulation model to illustrate the potential gains fromvarious possible banking systems

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

emissions trading systems with cap adjustments abstract emissions trading systems etss with fixed caps lack provisions to address systematic imbalances in the supply and demand of permits due to changes in the state of the regulated economy we propose a mechanism which adjusts the allocation of permits based on the current bank of permits the mechanism spans the spectrum between a pure quantity instrument and a pure price instrument we solve the firms emissions control problem and obtain an explicit dependency between the key policy stringency parameter the adjustment rate and the firms abatement and trading strategies we present an analytical tool for selecting the optimal adjustment rate under both risk neutrality and risk aversion which provides an analytical basis for the regulator s choice of a responsive ets policy

combining price and quantity controls to mitigate global climate change abstract uncertainty about compliance costs causes otherwise equivalent price and quantity controls to behave differently and leads to divergent welfare consequences although most of the debate on global climate change policy has focused on quantity controls due to their political appeal this paper argues that price controls are more efficient simulations based on a stochastic computable general equilibrium model indicate that the expected welfare gain from the optimal price policy is five times higher than the expected gain from the optimal quantity policy an alternative hybrid policy combines both the political appeal of quantity controls with the efficiency of prices using an initial distribution of tradeable permits to set a quantitative target but allowing additional permits to be purchased at a fixed trigger price even sub optimal hybrid policies offer dramatic efficiency improvements over otherwise standard quantity controls for example a 50 trigger price per ton of carbon converts the 3 trillion expected loss associated with a simple 1990 emission target to a 150 billion gain these results suggest that a hybrid policy is an attractive alternative to either a pure price or quantity system

carbon markets and technological innovation this paper examines the effects of firm level innovation in carbon abatement technologies on optimal cap and trade schemes with and without price controls we characterize optimal cap and trade regulation with a price cap and a price floor and compare it to the special cases of pure taxation and a simple emissions cap innovation shifts the tradeoff between price and quantity based instruments towards quantitybased emissions trading schemes more specifically an increase in innovation effectiveness lowers the optimal emissions cap and leads to relaxed price controls unless the slope of the marginal environmental damage curve is small because of the decrease in the emissions cap innovation in abatement technologies can lead to a higher expected carbon price so as to provide sufficient incentives for private r d investments the expected carbon price decreases once innovative technologies are widely used

soft and hard price collars in a cap and trade system a comparative analysis we use a stochastic dynamic framework to compare price collars price ceilings and floors in a cap and trade system with uncertainty in the level of baseline emissions and costs we consider soft collars which provide limited volume of additional emission allowances a reserve at the price ceiling and hard collars which provide an unlimited supply of additional allowances thereby preventing allowance prices from exceeding the price ceiling conversely allowances are removed from the market if prices fall to the floor we find that increasing the size of the reserve strictly lowers expected net present values of compliance costs however there is a diminishing effect as the allowance reserve is expanded most of the expected cost savings are achieved with a modest reserve consequently a rather limited soft price collar could provide considerable assurance about cost while preventing the possibility that emissions could spiral out of control

an experimental investigation of hard and soft price ceilings in emissions permit markets tradable emissions permits have been implemented to control pollution levels in various markets and represent a major component of legislative efforts to control greenhouse gas emissions because permits are supplied for a fixed level of pollution allowing the market for permits to determine the price price control mechanisms may be needed to protect firms from price spikes caused by fluctuations in the demand for permits we test permit markets in an experimental laboratory setting to determine the effectiveness of several price control mechanisms with special attention on the soft price ceiling we focus on a static setting similar to some of the earliest experimental work focused on price ceilings results indicate that both permit supply adjustments and price ceilings hard ceilings effectively limit elevated prices in this setting by contrast reserve auctions to implement soft ceilings do not consistently control prices especially when a minimum reserve permit price is applied furthermore the grandfathering of permits allows permit sellers to realize significant welfare gains at the expense of buyers under a soft ceiling policy our results thus highlight several advantages of hard ceilings for controlling short term price increases

enforcement and price controls in emissions trading this paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms abatement costs the analysis highlights how an enforcement strategy can cause abatement cost risk to be transmitted to enforcement costs via the price of permits when this occurs accommodating the effect of abatement cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second best optimal values however it is possible to design an enforcement strategy that shields enforcement costs from abatement cost risk by tying sanctions directly to permit prices this enforcement strategy stabilizes enforcement effort the optimal permit supply and price controls are independent of enforcement costs and the policy produces the second best optimal outcome

on the optimal provision of social insurance progressive taxation versus education subsidies in general equilibrium in this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk but distort the education decision of households optimally chosen tertiary education subsidies mitigate these distortions we highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits we also argue that a full characterization of the transition path is crucial for policy evaluation we find that optimal education policies are always characterized by generous tuition subsidies but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium

business cycles and emission trading with banking abstract we propose an emission cap adjustment policy for an emission trading system ets that allows banking of allowances for later use and faces business cycle uncertainty the forward looking banking decisions cause a commitment problem with respect to regulator s next period allowance supply decision we tackle the commitment problem by focusing on the markov equilibrium of the policy the equilibrium policy has a surprisingly simple structure combining features from both price and quantity instruments the regulator s ability to choose a new cap for each period does not render banking obsolete but on the contrary makes banking an integral part of the equilibrium policy using data from the eu ets to calibrate the model we solve the markov equilibrium policy for the case of carbon emissions regulation and compare markov policies with and without the possibility to bank allowances a counterfactual analysis of the eu ets during the period of 2009 2013 shows that the optimal markov policy would have led to a steadier allowance price level and a stricter emission regulation than what was actually observed in the eu ets

taxing top earners a human capital perspective we assess the consequences of substantially increasing the marginal tax rate on u s top earners using a human capital model we nd that 1 the peak of the model laer curve occurs at a 52 percent top tax rate 2 if human capital were exogenous then the top of the laer curve would occur at a 66 percent top tax rate and 3 applying the theory and methods that diamond and saez 2011 use to provide quantitative guidance for setting the top tax rate to model data produces a tax rate that substantially exceeds 52 percent

a cap and trade commitment policy with allowance banking we examine the planner s dynamic regulation problem in an emission trading system ets with allowance banking the planner sets the emissions cap for the next period after the current period allowance market has cleared but before knowing the next period s abatement cost realization this creates a time consistency problem when banking is possible we examine two policies to overcome the consistency problem a commitment solution and the markov perfect solution we show that the endogenous price floor generated by the banking demand becomes an integral feature of the two policies hence they can be best described as hybrid policies that combine elements from emissions taxes and tradable allowances this reveals new welfare implications that have an influence on instrument choice in the traditional prices versus quantities setup we compare the expected welfare outcomes of four different policy instruments the commitment policy the markov policy a pigouvian tax and a no banking ets we show that allowing banking can yield welfare gains compared to tax and quantity regulation with or without commitment

the vulnerability of price stabilization schemes to speculative attack this paper examines the effects of government attempts to stabilize the prices of commodities by use of buffer stocks agricultural goods subject to supply uncertainty as well as depletable resources are considered in each case it is shown that the resulting rational expectations competitive equilibrium contains a speculative attack a situation where the entire government stock is suddenly purchased by previously inactive speculators the analysis is applied to the historical attempt to peg the gold price which caused the attack of 1968 the insights gained and the methodology developed also apply to the various international agreements to impose bans on commodity prices which have been proposed by the united nations conference on trade and development

tax policy and human capital formation missing from recent discussions of tax reform is any systematic analysis of the effects of various tax proposals on skill formation this gap in the literature in empirical public finance is due to the absence of any empirically based general equilibrium models with both human capital formation and physical capital formation that are consistent with observations on modern labor markets this paper is a progress report on our ongoing research on formulating and estimating dynamic general equilibrium models with endogenous heterogeneous human capital accumulation our model explains many features of rising wage inequality in the u s economy james heckman lance lochner and christopher taber 1998 in this paper we use our model to study the impacts on skill formation of proposals to switch from progressive taxes to flat income and consumption taxes for the sake of brevity we focus on steady states in this paper although we study both transitions and steady states in our research this abstract was borrowed from another version of this item

progressive taxation in a dynastic model of human capital abstract we develop a quantitative theory of economic inequality to investigate the effects of replacing the current u s progressive income tax system with a proportional one the cross sectional implications of the theory are used to discipline the assessment of the effects of tax policy and circumvent the lack of conclusive micro evidence on the parameterization of the human capital production technology we find that the elimination of progressive taxation increases steady state level of output by 12 6 capital by 21 8 and consumption by 13 2 moreover it increases economic inequality and its persistence across generations

a note on correlated uncertainty and hybrid environmental policies this note examines the effects of correlated uncertainty between abatement costs and pollution damage on hybrid emissions control policies in particular i show how correlated uncertainty affects the structure and performance of control policies that combine permit trading with price controls moreover i show how correlated uncertainty affects the choice between a simple emissions tax versus a hybrid policy under correlated uncertainty constant marginal damage is no longer necessary or sufficient for a tax to be an optimal policy

accounting for heterogeneity diversity and general equilibrium in evaluating social programmes this paper considers the merits and limitations of alternative criteria proposed to evaluate social programmes in the modern welfare state and the information required to implement them when individual responses to programmes are heterogeneous participation in programmes is based in part on this heterogeneity and the programmes have general equilibrium impacts on the economy particular attention is devoted to the voting criterion used in modern positive political economy and the ranking of alternative social states based on anonymity postulates evidence on heterogeneity is presented conflicts among the criteria are revealed in two empirical studies partial equilibrium approaches are shown to be misleading

alternative approaches to cost containment in a cap and trade system we compare several emissions reduction instruments including quantity policies with banking and borrowing price policies and hybrid policies safety valve and price collar using a dynamic model with stochastic baseline emissions the instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options based on simulation analysis with the model parameterized to values relevant to proposed us climate mitigation policies we find that restrictions on banking and borrowing including the provision of interest rates on the borrowings can severely limit the value of the policy depending on the regulator chosen allowance issuance path although emissions taxes generally provide the lowest expected abatement costs a cap and trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax but with lower emissions variance than a tax consistently a price collar is more cost effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline

managing permit markets to stabilize prices the political economy of environmental policy favors the use of quantity based instruments over price based instruments e g tradable permits over green taxes at least in the united states with cost uncertainty however there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat such as with greenhouse gases the question arises therefore of whether one can design flexible quantity policies that mimic the behavior of price policies namely stable permit prices and abatement costs we explore a number of quantity plus policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs they do so without necessitating any monetary exchanges between the government and the regulated firms which can be a significant political barrier to the use of price instruments

second best instruments for near term climate policy intensity targets vs the safety valve abstract current proposals for greenhouse gas emissions regulations in the united states mainly take the form of emissions caps with tradable permits since weitzman s 1974 3 study of prices vs quantities economic theory predicts that a price instrument is superior under uncertainty in the case of stock pollutants given the general belief in the political infeasibility of a carbon tax in the us there has been recent interest in two other policy instrument designs hybrid policies and intensity targets we extend the weitzman model to derive an analytical expression for the expected net benefits of a hybrid instrument under uncertainty we compare this expression to one developed by newell and pizer 2006 6 for an intensity target and show the theoretical minimum correlation between gdp and emissions required for an intensity target to be preferred over a hybrid in general we show that unrealistically high correlations are required for the intensity target to be preferred to a hybrid making a hybrid a more practical instrument in practice we test the predictions by performing monte carlo simulation on a computable general equilibrium model of the us economy the results are similar and we show with the numerical model that when marginal abatement costs are non linear an even higher correlation is required for an intensity target to be preferred over a safety valve

permit market auctions with allowance reserves this article investigates pollution permit auctions that incorporate allowance reserves in these auctions the sale of a fixed quantity of permits is supplemented by an additional permit reserve this reserve automatically releases permits if a sufficiently high price is triggered the main justifications for implementing an allowance reserve are to reduce price volatility as well as assisting in cost containment we show paradoxically that incorporating an allowance reserve into a permit auction can decrease firms payoffs increase the clearing price and increase compliance costs this has implications for all major cap and trade markets including the us regional greenhouse gas initiative

policy shocks and market based regulations evidence from the renewable fuel standard the renewable fuel standard mandates large increases in u s biofuel consumption and is implemented using tradable compliance credits known as rins in early 2013 rin prices soared causing the regulator to propose reducing future mandates we estimate empirically the effect of three policy shocks that reduced the expected mandates in 2013 we find that the largest of these shocks decreased the value of the fuel industry s 2013 compliance obligation by 7 billion we then study the effects of the shocks on commodity markets and the market value of publicly traded biofuel firms results show that the burden of the mandate reductions fell primarily on advanced biofuel firms and commodity markets of the marginal compliance biofuel we argue that the policy shocks reduced the incentive to invest in the technologies required to meet the future objectives of the rfs and discuss alternative policy designs to address the problems that arose in 2013

life cycle earnings education premiums and internal rates of return using norwegian population panel data with nearly career long earnings histories we provide a detailed picture of the causal relationship between schooling and earnings over the life cycle to address selection bias we apply three commonly used identification strategies we find that additional schooling gives higher lifetime earnings and a steeper age earnings profile in line with predictions from human capital theory our preferred estimates imply an internal rate of return of around 11 suggesting that it was highly profitable to acquire additional schooling our analysis reveals that mincer regressions dramatically understate the returns to schooling because key assumptions are violated

procrastinating reform the impact of the market stability reserve on the eu ets abstract we study the impact of the market stability reserve msr on price and emission paths of the eu ets from 2019 onwards the msr will adjust the number of allowances auctioned as a function of the size of the surplus i e in times of a large surplus it shifts the issue date of allowances into the future in a perfectly competitive allowance market the msr only affects price and emission paths if the baseline equilibrium becomes unfeasible if the msr is binding prices increase in the short run but drop in the medium run relative to the baseline the msr increases price variability if uncertainty over future allowance demand is resolved while there is a surplus the long run cap is unaffected by both the msr and overlapping climate policies this contrasts the eu s objectives of improving the resilience of the eu ets and increasing synergies with overlapping climate policies

optimal human capital policies abstract we analyze optimal income taxes and optimal schooling subsidies in a dynamic private information economy with observable human capital accumulation we show that under plausible conditions the marginal schooling subsidies are positive and that they are zero at both endpoints of the skill distribution we compute the optimal policies and evaluate their impact over the transition and at the steady state we find that the optimal schooling policies are significantly smaller than the optimal marginal income taxes if optimal schooling policies are introduced jointly with optimal income taxes then their welfare and aggregate effects are small however if income taxes are not set optimally then the optimal schooling policies have significant welfare and aggregate effects

carbon pricing in the eu evaluation of different eu ets reform options abstract this paper studies various options to support allowance prices in the eu emissions trading system ets such as adjusting the cap an auction reserve price and fixed and variable carbon taxes in addition to the eu ets we use a dynamic computable general equilibrium model that explicitly allows for allowance banking and for a detailed cost effectiveness analysis at the eu member state level we find that tightening the cap provides an ad hoc solution to the fundamental issue of the robustness of the effective carbon price while introducing a price component to the ets brings structural carbon price support in times of negative demand shocks for emission allowances these price based policies still benefit from the intertemporal flexibility through the banking provision in the eu ets by re allocating emissions over time with stronger emission reductions in early years and emission increases in later years a higher emission price has a larger negative impact on the new member states economies than on other member states furthermore introducing a carbon tax in addition to the eu ets decreases the price of allowances resulting in welfare gains for net buyers of allowances while net sellers are worse off