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Belts and Suspenders: Interactions among Climate Policy Regulations

In: The Design and Implementation of US Climate Policy

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  • Arik Levinson

Abstract

With few exceptions, economic analyses of "cap-and-trade" permit trading mechanisms for climate change mitigation have been based on first-best scenarios without pre-existing distortions or regulations. The reason is obvious: interactions between permit trading and other regulations will be complex. However, climate policy proposed for the U.S. will certainly interact with existing laws, and will also likely include additional regulatory changes with their own sets of interactions. Major bills introduced in the U.S. Congress have included both permit trading and traditional command and control regulations - a combination sometimes called "belts and suspenders." This paper discusses interactions between these instruments, and begins to lay out a framework for thinking about them systematically. The most important determinant of how the two types of instruments interact involves whether or not the cap-and-trade permit price would induce more or less abatement than mandated by the traditional standards alone. Moreover, economists' experience predicting the costs of environmental regulations suggests we are more likely to overestimate the costs of cap-and-trade, and therefore the price of carbon permits, than we are to overestimate the costs of a traditional regulatory standard, and that therefore the regulatory standards will likely reduce the cost-effectiveness benefits of cap-and-trade.
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  • Arik Levinson, 2011. "Belts and Suspenders: Interactions among Climate Policy Regulations," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 127-140, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:12138
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    2. Joseph Aldy & Matthew J. Kotchen & Mary Evans & Meredith Fowlie & Arik Levinson & Karen Palmer, 2021. "Cobenefits and Regulatory Impact Analysis: Theory and Evidence from Federal Air Quality Regulations," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 2(1), pages 117-156.
    3. Ambec, Stefan & Coria, Jessica, 2021. "The informational value of environmental taxes," Journal of Public Economics, Elsevier, vol. 199(C).
    4. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    5. Harrison Fell & Daniel T. Kaffine, 2014. "A one-two punch: Joint effects of natural gas abundance and renewables on coal-fired power plants," Working Papers 2014-10, Colorado School of Mines, Division of Economics and Business.
    6. Filippo Maria D’Arcangelo & Ilai Levin & Alessia Pagani & Mauro Pisu & Åsa Johansson, 2022. "A framework to decarbonise the economy," OECD Economic Policy Papers 31, OECD Publishing.
    7. Fell, Harrison & Kaffine, Daniel T., 2014. "A one-two punch: Joint eects of natural gas abundance and renewables on coal-red power plants," CEnREP Working Papers 340063, North Carolina State University, Department of Agricultural and Resource Economics.
    8. Arik Levinson, 2011. "Comment on "Interactions between State and Federal Climate Change Policies"," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 122-125, National Bureau of Economic Research, Inc.
    9. Spyridaki, N.-A. & Flamos, A., 2014. "A paper trail of evaluation approaches to energy and climate policy interactions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 1090-1107.
    10. Nicholas Rivers, Randall Wigle, 2018. "An evaluation of policy options for reducing greenhouse gas emissions in the transport sector: The cost-effectiveness of regulations versus emissions pricing," LCERPA Working Papers 0107, Laurier Centre for Economic Research and Policy Analysis, revised 01 Jan 2018.

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    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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