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Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design

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Borenstein, Severin, Bushnell, James, Wolak, Frank A., Zaragoza-Watkins, Matthew·2019·American Economic Review
DOI 10.1257/aer.20161218
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Abstract

We study potential equilibria in California’s cap-and-trade market for greenhouse gases (GHGs) based on information available before the market started. We find large ex ante uncertainty in business-as-usual emissions and in the abatement that might result from non-market policies, much larger than the reduction that could plausibly occur in response to an allowance price within a politically acceptable range. This implies that the market price is very likely to be determined by an administrative price floor or ceiling. Similar factors seem likely to be present in other cap-and-trade markets for GHGs. (JEL D47, D81, Q54, Q58, R11)

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Research works printed but not linked: 12

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Authors
Borenstein, S., Bushnell, J., Wolak, F. A., & Zaragoza-Watkins, M.
Affiliations
  • National Bureau of Economic Research (US)
  • Vanderbilt University (US)
ORCID
Venue
American Economic Review
Publisher
American Economic Association
Published
2019-11-01
Volume
109
Issue
11
Pages
3953-3977
ISSN
0002-8282 (ISSN-L)
DOI
10.1257/aer.20161218
OpenAlex
W1500367255
Cited by
205
References
19
Citations by year
2026: 25 · 2025: 48 · 2024: 23 · 2023: 22 · 2022: 35 · 2021: 17 · 2020: 13 · 2019: 7 · 2018: 4 · 2017: 2 · 2016: 7 · 2015: 1 · 2014: 1
FWCI
23.43
Type
journal article
Language
en
Open access
Locations
  • American Economic Review (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Climate Change Policy and Economics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Energy, Environment, Economic Growth
  • Social Sciences › Economics, Econometrics and Finance › Finance › Capital Investment and Risk Analysis
Keywords
emissions trading, greenhouse gas emissions, emission uncertainty, allowance prices, business-as-usual emissions, abatement

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