Instrument choice for emission control: Are emission trading markets always cost-efficient?
Student name: Mr Sankalp Mathur
Guide: Dr Soumendu Sarkar
Year of completion: 2017
Host Organisation: TERI University
Abstract: Increasing carbon emissions by the industrial units and the resultant global warming have been a cause of concern for governments and policy-makers across the globe. Global Warming destabilizes the ecological structure, posing threat to natural resources, aquatic species, and human beings. Countries have signed various international environmental agreements, committing to reduce the carbon emissions. In this backdrop, choosing the right policy instruments for abating industrial pollution becomes an important determinant in achieving the emission commitments.
The question is, how can we reduce the emissions to the target level in the most cost-efficient way? In exploring the instrument choice for cost-efficiency, the marginal abatement curve of a firm or an industry; and the level of heterogeneity may play a significant tool. Among the modern environmental policy instruments, emission trading systems have gained significant popularity in curbing carbon emissions from industrial systems. Market-based environmental policies, like an Emission Trading System, induces firms to invest in cleaner technologies and have been theoretically proven to achieve emission targets at the least cost. This research explores how the degree of cost-efficiency of market-based Emission Trading System changes with the change in the industrial heterogeneity and the curvature of the abatement function, with respect to non-market Command-and-Control Instrument.
