17 November — Quantities with Prices: Price-Responsive Supply of Emissions Allowances in Cap-and-Trade Programs
Date: 17 November 2021
Time: 12:00pm ET
Location: Wean Hall 3701 & via Zoom
Speaker: Dr. Dallas Burtraw
Topic: Quantities with Prices: Price-Responsive Supply of Emissions Allowances in Cap-and-Trade Programs
Abstract: Environmental policy with uncertainty is often posed as a choice between price and quantity instruments. Paradoxically, this economic advice employs architecture derived from a first-best global framework that applies imperfectly to the partial equilibrium, multi-faceted regulatory policy setting where it is applied. This paper evaluates instrument design and the evolution of environmental pricing within this sequential policy environment. Quantity “cap” instruments are more often used in practice. Recently, however, one observes automatically adjusting emissions allowance supply schedules emerging in existing trading programs. We propose a conceptual framework for a price-responsive supply schedule and use laboratory experiments and simulation modeling to explore its performance and design. A price-responsive supply schedule offers efficiency advantages over either a price or quantity instrument, and amplifies the additionality of technology and energy policies that are expected to lower costs over time.
