CO2 EMISSIONS CONTROL - COMPARING POLICY INSTRUMENTS

We use a global model to compare the economic performance of three policy instruments for controlling CO2 emissions -period specific emission limits (limit policy), period specific taxes (tax policy), and a cumulative emissions limit (cumulative limit policy). With known costs and benefits of control, tax and limit policies are equivalent, and either is better than a cumulative limit policy. With uncertain benefits of emission reduction, tax and limit policies are equivalent. However, with uncertain costs of emission reduction, a tax policy may be better. A cumulative limit policy may occasionally perform well under uncertainty, but this is not generally the case.