Allowing emissions permits to be banked and borrowed over time can yield efficiency gains. I develop a model to demonstrate that banking and borrowing can also be allowed for a price policy. I compare expected welfare between price and quantity policies, with and without banking, under several different scenarios regarding uncertainty. A bankable policy can provide an efficiency improvement by allowing for smoothing of costs, though it does not necessarily dominate a policy that does not allow banking. The ranking of prices vs. quantities and of bankability vs. non-bankability depends on both the slopes of marginal costs and benefits and on the specification of uncertainty.
Thanks to Billy Pizer, Marty Weitzman, and seminar participants at GSU for comments and to Puneet Arora for research assistance. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.