, the simulations indicate that no matter how permits are allocated, this policy instrument can substantially reduce the …

We construct an endogenous (Bayesian) learning model with fat-tailed uncertainty on the equilibrium climate sensitivity …. We find that the uncertainty is partially resolved over time, although the rate of learning is relatively slow, and the …-effect of deep uncertainty. This is intuitive in that the decision maker fully utilizes the information revealed to reduce …

nevertheless relocate to countries with a lower carbon price once the competitive disadvantage of their home industry becomes … sufficiently high. We show that this is not necessarily the case. A temporary grandfathering policy can be a sufficient instrument … necessary condition for this is that the permit price triggers investments in low-carbon technologies or abatement capital. …

likely to over-regulate non-abating firms compared to the level of regulation that accounts for voluntary abatement if … low, regulation may be ineffective in improving overall environmental quality. …