Prices versus quantities versus bankable quantities
Abstract
Quantity-based regulation with banking allows regulated firms to shift obligations
across time in response to periods of unexpectedly high or low marginal costs. Despite
its wide prevalence in existing and proposed emission trading programs, banking has
received limited attention in past welfare analyses of policy choice under uncertainty.
We address this gap with a model of banking behavior that captures two key constraints:
uncertainty about the future from the firm's perspective and a limit on negative bank
values (e.g. borrowing). We show conditions where banking provisions reduce price
volatility and lower expected costs compared to quantity policies without banking.
For plausible parameter values related to U.S. climate change policy, we find that
bankable quantities produce behavior quite similar to price policies for about two
decades and, during this period, improve welfare by about a $1 billion per year over
fixed quantities. © 2012 Elsevier B.V.
Type
Journal articlePermalink
https://hdl.handle.net/10161/10276Published Version (Please cite this version)
10.1016/j.reseneeco.2012.05.004Publication Info
Fell, H; MacKenzie, IA; & Pizer, WA (2012). Prices versus quantities versus bankable quantities. Resource and Energy Economics, 34(4). pp. 607-623. 10.1016/j.reseneeco.2012.05.004. Retrieved from https://hdl.handle.net/10161/10276.This is constructed from limited available data and may be imprecise. To cite this
article, please review & use the official citation provided by the journal.
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Show full item recordScholars@Duke
Billy Pizer
Research Professor in the Sanford School of Public Policy
Billy Pizer joined the faculty of the Sanford School of Public Policy at Duke University
in the fall of 2011. He also was appointed a faculty fellow in the Nicholas Institute
for Environmental Policy Solutions, a nonpartisan institute at Duke that focuses on
finding solutions to some of the nation's most pressing environmental challenges.
His current research examines how we value the future benefits of climate change mitigation,
how environmental regulation and climate policy can af

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