Prices versus quantities versus bankable quantities

Fell, Harrison, MacKenzie, Ian A. and Pizer, William A. (2012) Prices versus quantities versus bankable quantities. Resource and Energy Economics, 34 4: 607-623. doi:10.1016/j.reseneeco.2012.05.004

Author Fell, Harrison
MacKenzie, Ian A.
Pizer, William A.
Title Prices versus quantities versus bankable quantities
Journal name Resource and Energy Economics   Check publisher's open access policy
ISSN 0928-7655
Publication date 2012-01-01
Sub-type Article (original research)
DOI 10.1016/j.reseneeco.2012.05.004
Open Access Status Not yet assessed
Volume 34
Issue 4
Start page 607
End page 623
Total pages 17
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Abstract Quantity-based regulation with banking allows regulated firms to shift obligations across time in response to periods of unexpectedly high or low marginal costs. Despite its wide prevalence in existing and proposed emission trading programs, banking has received limited attention in past welfare analyses of policy choice under uncertainty. We address this gap with a model of banking behavior that captures two key constraints: uncertainty about the future from the firm's perspective and a limit on negative bank values (e.g. borrowing). We show conditions where banking provisions reduce price volatility and lower expected costs compared to quantity policies without banking. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities produce behavior quite similar to price policies for about two decades and, during this period, improve welfare by about a $1 billion per year over fixed quantities.
Keyword Prices
Climate change
Allowance banking
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status Non-UQ
Additional Notes Available online: 24 May 2012.

Document type: Journal Article
Sub-type: Article (original research)
Collections: Non HERDC
School of Economics Publications
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Created: Fri, 09 Nov 2012, 02:28:56 EST by Alys Hohnen on behalf of School of Economics