TY  - JOUR
AU  - Murray,Brian C.
AU  - Newell,Richard G.
AU  - Pizer,William A.
TI  - Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14258
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14258
L1  - http://www.nber.org/papers/w14258.pdf
N1  - Author contact info:
Brian C. Murray
Duke University
Box 90328
Durham, NC 27708
E-Mail: bcmurray@duke.edu

Richard G. Newell
Nicholas School of the Environment
Duke University
Box 90227
Durham, NC 27708
Tel: 919/681-8663
Fax: 919/684-5833
E-Mail: richard.newell@duke.edu

William A. Pizer
Sanford School of Public Policy
Duke University
Box 90312
Durham, NC 27708
Tel: 919/613-9286
Fax: 877/240-9880
E-Mail: billy.pizer@duke.edu
AB  - On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change -- such as taxes or a "safety-valve" price ceiling for cap-and-trade -- while environmental advocates have sought a more clear quantitative limit on emissions. This paper presents a simple modification to the idea of a safety valve: a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to  tax or other price-based policies. The last point highlights the deficiencies in several previous studies of price and quantity controls for climate change that do not adequately capture the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.
ER  -