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When a National Cap-and-Trade Policy with Carve-out Provision May Be Preferable to a National CO2 Tax

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  • Megan H. Accordino and Deepak Rajagopal

Abstract

We analyze the effect of various combinations of state and national emissions policies on national emissions of a global pollutant, specifically, greenhouse gas emissions. We highlight the effect of unintended increases in out-of-state emissions on the efficacy of overlapping state policies. We show that emission taxes do not necessarily prevent a completely offsetting increase in out-of-state emissions when states add a state-level emissions tax to the national emissions tax. In particular, states small relative to their market will be unable to reduce national emissions with a state-level CO2 tax or a system of tradable permits. However, under a national cap-and-trade regime that allows states to be carved out, a state of any size can reduce national emissions by setting a tighter state cap. This combination yields a lower total cost than the equivalent combination of national and state CO2 taxes (if one exists) but increases the cost to consumers outside the market.

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  • Megan H. Accordino and Deepak Rajagopal, 2015. "When a National Cap-and-Trade Policy with Carve-out Provision May Be Preferable to a National CO2 Tax," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
  • Handle: RePEc:aen:journl:ej36-3-rajagopal
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    Cited by:

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    3. Woo, C.K. & Chen, Y. & Olson, A. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Electricity price behavior and carbon trading: New evidence from California," Applied Energy, Elsevier, vol. 204(C), pages 531-543.
    4. Cohen, Alex & Keiser, David, 2016. "The Effectiveness of Overlapping Pollution Regulation: Evidence from the Ban on Phosphate in Dishwasher Detergent," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235533, Agricultural and Applied Economics Association.
    5. Woo, C.K. & Olson, A. & Chen, Y. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Does California's CO2 price affect wholesale electricity prices in the Western U.S.A.?," Energy Policy, Elsevier, vol. 110(C), pages 9-19.

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