Judged by the principle of intertemporal Pareto optimality, insecure property rights and the greenhouse effect both imply overly rapid extraction of fossil carbon resources. A gradual expansion of demand-reducing public policies -- such as increasing ad-valorem taxes on carbon consumption or...

U.S. adoption of a cap-and-trade program for greenhouse gases could place some domestic producers at a disadvantage relative to international competitors who do not face similar regulation. To address this issue, proposed federal climate change legislation includes a provision that would freely...

This essay revisits the question of instrument choice for the regulation of externalities in the context of climate change. The central point is that the Pigouvian prescription to equate marginal control costs with the expected marginal benefits of damage reduction should guide the design of...

While economic models have already proven useful to analyze big picture questions about climate policy such as the choice between a carbon tax or cap-and-trade permit system, the 19 chapters in this book show how economic models also are useful to address the many remaining smaller questions...

Emissions of greenhouse gases linked with global climate change are affected by diverse aspects of economic activity, including individual consumption, business investment, and government spending. An effective climate policy will have to modify the decision calculus for these activities in the...

Cap and trade programs have considerable heterogeneity in permit validity and compliance timing. For example, permits have different validity across time (e.g., banking, borrowing, and seasons) and space (e.g., zonal restrictions), and compliance timing can be annual, in overlapping cycles, or...

The outcome of the December 2011 United Nations climate negotiations in Durban, South Africa, provides an important new opportunity to move toward an international climate policy architecture that is capable of delivering broad international participation and significant global CO2 emissions...

Public policies for pollution control, including climate change policies, sometimes allow polluters in one sector subject to an emissions cap to offset excessive emissions in that sector with pollution abatement in another sector. The government may often find it more costly to verify offset...

This paper develops a simple model of a polluting industry and an innovating firm. The polluting industry is faced with regulation and costly abatement. Regulation may be taxes or marketable permits. The innovating firm invests in R&D and develops technologies which reduce the cost of pollution...

The allocation of emissions allowances is among the most contentious elements of the design of cap-and-trade systems. In this paper we develop a detailed representation of the US western electricity market to assess the potential impacts of various allocation proposals. Several proposals involve...