Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins / Roberton C. Williams III.

By:

Williams, Roberton C, III

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16120.Publication details: Cambridge, Mass. National Bureau of Economic Research 2010.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper considers the question of under what circumstances a new environmental regulation should "phase in" gradually over time, rather than being immediately implemented at full force. The paper focuses particularly on climate policy, though its insights are more general. It shows that while adjustment costs provide a strong efficiency argument for phasing in a quantity-based regulation (or allowing intertemporal flexibility that creates the equivalent of a phase-in), this argument does not apply for price-based regulation. Indeed, in many cases, it will be more efficient to do just the opposite, setting an initially very high emissions price that then falls as the policy phases in. This difference in results comes not from any fundamental difference between price and quantity policies: under either policy, the efficient quantity of abatement rises over time, while the efficient price stays constant or even falls. But other considerations, such as distributional concerns or monitoring and enforcement issues, may still argue for a gradual phase-in even for a price-based policy.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w16120 (Browse shelf(Opens below))	Not For Loan

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June 2010.

This paper considers the question of under what circumstances a new environmental regulation should "phase in" gradually over time, rather than being immediately implemented at full force. The paper focuses particularly on climate policy, though its insights are more general. It shows that while adjustment costs provide a strong efficiency argument for phasing in a quantity-based regulation (or allowing intertemporal flexibility that creates the equivalent of a phase-in), this argument does not apply for price-based regulation. Indeed, in many cases, it will be more efficient to do just the opposite, setting an initially very high emissions price that then falls as the policy phases in. This difference in results comes not from any fundamental difference between price and quantity policies: under either policy, the efficient quantity of abatement rises over time, while the efficient price stays constant or even falls. But other considerations, such as distributional concerns or monitoring and enforcement issues, may still argue for a gradual phase-in even for a price-based policy.