Price floors for emissions trading

Peter J Wood, Frank Jotzo

    Research output: Contribution to journalArticle

    Abstract

    Price floors in greenhouse gas emissions trading schemes can guarantee minimum abatement efforts if prices are lower than expected, and they can help manage cost uncertainty, possibly as complements to price ceilings. Provisions for price floors are found in several recent legislative proposals for emissions trading. Implementation however has potential pitfalls. Possible mechanisms are government commitments to buy back permits, a reserve price at auction, or an extra fee or tax on acquittal of emissions permits. Our analysis of these alternatives shows that the fee approach has budgetary advantages and is more compatible with international permit trading than the alternatives. It can also be used to implement more general hybrid approaches to emissions pricing.
    Original languageEnglish
    Pages (from-to)1746-1753
    JournalEnergy Policy
    Volume39
    Issue number3
    DOIs
    Publication statusPublished - 2011

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