Environmental Regulation by Prices and Quantities
Efforts for the reduction of greenhouse gas emissions require economically efficient and ecologically effective policies. This book examines the effectiveness of quantity regulation, such as emissions trading, for the sustainable reduction of greenhouse gases at least cost. The introduction presents an overview of economic approaches to environmental regulation and to the economics of climate change in particular. Recent developments in the EU Emissions Trading Scheme from 2005 to 2012 are discussed. The book analyses international linkages of policies for greenhouse gas regulation, i.e. with regard to linkages of price and quantity regulation. Based on an empirical examination of transaction costs in the EU Emissions Trading Scheme in Germany, questions of efficient policy design and general coverage of emissions trading schemes are discussed. Since emission trading schemes require exchange of allowances by regulated firms, such schemes are more complex with regard to the firm-internal management of regulation compared to price approaches (e.g. a carbon tax). Thus, the market for allowances is examined with a focus on intermediaries in the carbon market, such as banks. The analysis inter alia examines the possibility of market power by intermediaries.
This book highlights the importance of policy design for the economic efficiency and environmental effectiveness of national and international climate policy. Quantity regulation, e.g. by an emissions trading scheme, can be an efficient and effective form of environmental regulation for larger emitters while for the regulation of smaller emitters, alternative policies should be considered. The actual design of national environmental and climate policies is highly important for the successful international linkage of measures to reduce uniformly mixed pollutants, such as greenhouse gases.