Price Limits in a Tradable Performance Standard / Banban Wang, William A. Pizer, Clayton Munnings.

Format:

Book

Author/Creator:

Wang, Banban.

Contributor:

National Bureau of Economic Research.

Pizer, William A.

Munnings, Clayton.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28368.

NBER working paper series no. w28368

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

Tradable performance standards are widely used sectoral regulatory policies. Examples include the US lead phasedown, fuel economy standards for automobiles, renewable portfolio standards, low carbon fuel standards, and--most recently--China's new national carbon market. At the same time, theory and experience with traditional cap-and-trade programs suggests an important role for price limits in the form of floors, ceilings, and reserves. In this paper we develop a simple analytical model to derive the welfare comparison between tradable performance standards and a price-based alternative. This works out to be is a simple variant of the traditional Weitzman prices-versus-quantities result. We use this result to show that substantial gains could arise from shifting two programs, China's new national carbon market (~60% gain) and the California Low Carbon Fuel Standard (~20% gain), to a price mechanism. This will generally be true when the coefficient of variation in the price under a TPS is larger than 50%. We end with a discussion of implementation issues, including full and partial consignment auctions based on actual and expected output.

Notes:

Print version record

January 2021.