October 3, 2011

Strategic Climate Policy with Offsets and Incomplete Abatement: Carbon Taxes Versus Cap-and-Trade

by Jon Strand

- This paper provides a first analysis of optimal offset policies by a "policy bloc" of fossil fuel importers implementing a climate policy, facing a (non-policy) fringe of other importers, and a bloc of fuel exporters. The policy bloc uses either a carbon tax or a cap-and-trade scheme, jointly with a fully efficient offset mechanism for reducing emissions in the fringe. The policy bloc is then shown to prefer a tax over a cap-and-trade scheme.

Strand, J. (2011). "Strategic climate policy with offsets and incomplete abatement: carbon taxes versus cap-and-trade." World Bank Policy Research working paper No. WPS 5675, Jun 2011.