Prices versus quantities versus bankable quantities
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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.
Published Version (Please cite this version)10.1016/j.reseneeco.2012.05.004
Publication InfoFell, 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.
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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