Intertemporal dynamic hybrid policy design for emissions control with information uncertainty
The information uncertainty of firms'emissions abatement cost is the main reason for inefficiency of environmental management instruments,such as cap control(quantity policy)or emission charges(price policy).To alleviate the inefficiency of such unitary policy,this paper designs three types of quantity-price hybrid policy with ceiling price,floor price,and bilateral price collars in the framework of cap-and-trade with banking and borrowing mechanisms.We prove that each hybrid policy is of achieving efficient market allocation in decentralized equi-librium.In the case of non-updating information,all the hybrid policies strictly dominate the quantity and price policies,and the hybrid policy with bilateral price collars strictly dominates that with unilateral price collar.There is no difference in efficiency between hybrid policies,quantity policy,and price policy in the case of updating information,and each makes the least-cost attainable.Numerical simulation analysis of China's carbon market shows that the hybrid policies lead to remarkable cost savings compared to cap-and-trade,and hybrid policy with bi-lateral price collars has the lowest carbon price volatility.
information uncertaintyabatement costshybrid policiesquantity and price pol-icybanking and borrowing
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