International Review of Environmental and Resource Economics > Vol 5 > Issue 4

Cost Containment under Cap and Trade: A Review of the Literature

Harrison Fell, Resources for the Future, USA, Eric Moore, Resources for the Future, USA, Richard D. Morgenstern, Resources for the Future, USA, morgenstern@rff.org
 
Suggested Citation
Harrison Fell, Eric Moore and Richard D. Morgenstern (2011), "Cost Containment under Cap and Trade: A Review of the Literature", International Review of Environmental and Resource Economics: Vol. 5: No. 4, pp 285-307. http://dx.doi.org/10.1561/101.00000044

Published: 25 Sep 2011
© 2011 H. Fell, E. Moore and R. D. Morgenstern
 
Subjects
Environmental Economics
 
Keywords
Q52Q54Q58
Cost containmentCap and tradeOffsetsHybrid policiesAllowance banking
 

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In this article:
1 Introduction
2 Allowance Banking and Borrowing
3 Hybrid Policies
4 Offsets
5 Conclusion
References

Abstract

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 review three cost containment mechanisms most commonly employed in existing cap and trade policies and/or discussed in the literature: banking and borrowing, hybrid policies, and emission offsets. For each of these mechanisms we discuss the theoretical basis for the policy, potential unintended consequences and, where applicable, the effectiveness of the policy as it has been used in practice.

DOI:10.1561/101.00000044