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...

Cap and trade programs have been a commonly proposed method to regulate emissions of various pollutants. As many countries move forward with plans to regulate CO₂ emissions, concerns over containing the costs of such policies often arise given the relatively large scope of the programs. We...