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Optimal early action on greenhouse gas emissions

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  • Peter W. Kennedy

Abstract

In this paper I argue that early action policies that focus on early actual emission reductions will tend to distort abatement investment decisions and thereby inflate the national compliance cost of a greenhouse gas emissions reduction target. Compliance cost savings stem from well-planned early action that may or may not yield early actual emission reductions. Thus, policies that target actual emission reductions, such as "credit for early action" or an aggressive, early "cap-and-trade" program, have the potential to be highly distorting. Simulation results from a model calibrated to the Canadian economy suggest that the associated welfare losses could be many billions of dollars.
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Suggested Citation

  • Peter W. Kennedy, 2002. "Optimal early action on greenhouse gas emissions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 35(1), pages 16-35, February.
    • Handle: RePEc:wly:canjec:v:35:y:2002:i:1:p:16-35
    DOI: 10.1111/1540-5982.00118
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    Cited by:

    1. G. Cornelis van Kooten, 2003. "Smoke and Mirrors: The Kyoto Protocol and Beyond," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 397-415, December.
    2. Chevallier, Julien & Etner, Johanna & Jouvet, Pierre-André, 2011. "Bankable emission permits under uncertainty and optimal risk-management rules," Research in Economics, Elsevier, vol. 65(4), pages 332-339, December.
    3. Lambertini, Luca & Pignataro, Giuseppe & Tampieri, Alessandro, 2020. "The effects of environmental quality misperception on investments and regulation," International Journal of Production Economics, Elsevier, vol. 225(C).
    4. Di Maria, Corrado & Smulders, Sjak & van der Werf, Edwin, 2012. "Absolute abundance and relative scarcity: Environmental policy with implementation lags," Ecological Economics, Elsevier, vol. 74(C), pages 104-119.
    5. Jus Darko & Meier Volker, 2015. "Announcing is Bad, Delaying is Worse: Another Pitfall in Well-intended Climate Policy," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(3), pages 286-297, June.
    6. Keith Brouhle & Donna Ramirez Harrington, 2009. "Firm strategy and the Canadian Voluntary Climate Challenge and Registry (VCR)," Business Strategy and the Environment, Wiley Blackwell, vol. 18(6), pages 360-379, September.
    7. Sjak Smulders & Edwin van der Werf, 2008. "Climate policy and the optimal extraction of high- and low-carbon fossil fuels," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1421-1444, November.
    8. Wang, Mingxi & Wang, Mingrong & Wang, Shouyang, 2012. "Optimal investment and uncertainty on China's carbon emission abatement," Energy Policy, Elsevier, vol. 41(C), pages 871-877.
    9. Corrado Di Maria & Sjak Smulders & Edwin van der Werf, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Working Papers 2008.92, Fondazione Eni Enrico Mattei.
    10. Kim, Eun-Hee & Lyon, Thomas P., 2011. "Strategic environmental disclosure: Evidence from the DOE's voluntary greenhouse gas registry," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 311-326, May.

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