Greenhouse gas emissions control by economic incentives: Survey and analysis

This paper presents a survey of issues and concerns raised in recent literature on the application of market-based approaches to greenhouse effect policy with an emphasis on tradeable emission permits. The potential advantages of decentralized decision-making -- cost-effectiveness or allocation efficiency, stimulation of innovations, and political feasibility are discussed. The potential difficulties of data recording, monitoring, enforcement, and of creating viable emission permit contracts and markets are examined. Special attention is given to the problem of designing a greenhouse effect policy that is cost-effective over time, a problem that has been given little attention to date. Proposals to reduce or stabilize greenhouse gas emission (especially CO{sub 2}) in the short run require high carbon tax rates or permit prices and impose heavy adjustment costs on the fossil fuel industry. A more cost-effective time path of permit prices is proposed that achieves the same long-run climate change stabilization goals. 21 refs., 3 figs.