Skip Ribbon Commands
Skip to main content
Home | Support RFF | Join E-mail List | Contact
RFF Logo
Skip navigation links
RESEARCH TOPICS
CENTERS
PUBLICATIONS
NEWS
EVENTS
RESEARCHERS
ABOUT RFF
 

 

 
Join E-mail List
Please provide your e-mail address to receive periodic newsletters and invitations to public events
 
 
Soft and Hard Price Collars in a Cap-and-Trade System: A Comparative Analysis
Harrison Fell, Dallas Burtraw, Richard D. Morgenstern, Karen L. Palmer, Louis Preonas
RFF Discussion Paper 10-27-REV | June 2011
Related journal article
 
RESEARCH TOPICS:
Abstract
We use a stochastic dynamic framework to compare price collars (price ceilings and floors) in a cap-and-trade system. Sources of uncertainty include shocks to baseline emissions, affectingcorresponding abatement costs, and shocks to the supply of offsets. We consider a continuum between soft collars, which have a limited volume of additional emission allowances (a reserve) available at theprice ceiling, and hard collars, which provide an unlimited supply of additional allowances, thereby preventing allowance prices from exceeding the price ceiling. For all cases considered, we set the price floors and ceiling such that the expected cumulative emissions net of offsets are equal to the cumulative allowances. Consequently, increasing the size of the allowance reserve requires higher price ceilings and floors, and a lower probability of reaching the ceiling. Across most parameter values examined, we find that increasing the size of the allowance reserve leads to lower expected net present values of compliance costs, although the differences are not large. However, when offset supply shocks are highly persistent and exhibit strong (negative) correlation with baseline emission shocks, hard collars deliver noticeably lower expected costs, though with a wider range of emission outcomes than the soft collars.
RFF Home | RFF Press: An Imprint of Routledge Terms of Use | Privacy Policy | Copyright Notice
1616 P St. NW, Washington, DC 20036 ยท 202.328.5000 Feedback | Contact Us