| ID | 098577 |
| Title Proper | Symmetric safety valve |
| Language | ENG |
| Author | Burtraw, Dallas ; Palmer, Karen ; Kahn, Danny |
| Publication | 2010. |
| Summary / Abstract (Note) | How to set policy in the presence of uncertainty has been central in debates over climate policy. Concern about costs has motivated the proposal for a cap-and-trade program for carbon dioxide, with a "safety valve" that would mitigate against spikes in the cost of emission reductions by introducing additional emission allowances into the market when marginal costs rise above the specified allowance price level. We find two significant problems, both stemming from the asymmetry of an instrument that mitigates only against a price increase. One is that most important examples of price volatility in cap-and-trade programs have occurred not when prices spiked, but instead when allowance prices collapsed. Second, a single-sided safety valve may have unintended consequences for investment. We illustrate that a symmetric safety valve provides environmental and welfare improvements relative to the conventional one-sided approach. |
| `In' analytical Note | Energy Policy Vol. 38, No. 9; Sep 2010: p.4921-4932 |
| Journal Source | Energy Policy Vol. 38, No. 9; Sep 2010: p.4921-4932 |
| Key Words | Climate Change ; Cost Management ; Cap and Trade |