by Harrison Fell, Dallas Burtraw, Richard D. Morgenstern, Karen L. Palmer, Louis Preonas
- 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, affecting corresponding 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 the price ceiling, and hard collars, which provide an unlimited supply of additional allowances, thereby preventing allowance prices from exceeding the price ceiling.
Fell, H., D. Burtraw, R.D. Morgenstern, K.L. Palmer and L. Preonas (2010). "Soft and Hard Price Collars in a Cap-and-Trade System: A Comparative Analysis." RFF Discussion Paper 10-27, May 2010.