Emissions targets and the real business cycle: Intensity targets versus caps or taxes |
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| Institution: | 1. Resources For the Future, Washington, DC, USA;2. University of California, Davis, 2104 Wickson Hall, One Shields Ave, Davis, CA 95616, USA;1. Università degli Studi di Roma “Tor Vergata”, Dipartimento di Economia e Finanza, Via Columbia 2, 00133 Roma, Italy;2. Ministero dell''Economia e delle Finanze, Roma, Italy;3. Sogei S.p.a. - IT Economia - Modelli di Previsione ed Analisi Statistiche, Roma, Italy;4. Sapienza Università di Roma, Dipartimento di Scienze Sociali ed Economiche, Piazzale Aldo Moro 5, 00185 Roma, Italy;1. Dipartimento di Economia e Finanza, Universitá degli Studi di Roma Tor Ver-gata, Via Columbia 2, 00133 Roma, Italy;2. Dipartimento di Economia e Impresa, Universitá degli Studi della Tuscia, Italy;3. Sogei S.p.a. – IT Economia – Modelli di Previsione ed Analisi Statistiche, Italy |
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| Abstract: | For reducing greenhouse gas emissions, intensity targets are attracting interest as a flexible mechanism that would better allow for economic growth than emissions caps. For the same expected emissions, however, the economic responses to unexpected productivity shocks differ. Using a real business cycle model, we find that a cap dampens the effects of productivity shocks in the economy on all variables except for the shadow value of the emissions constraint. An emissions tax leads to the same expected outcomes as a cap but with greater volatility. Certainty-equivalent intensity targets maintain higher levels of labor, capital, and output than other policies, with lower expected costs and no more volatility than with no policy. |
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