Carbon policies
Do they deliver in the long run?
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Abstract
Carbon taxation and emission trading are policy instruments for achieving significant CO2 emission reduction by inducing a shift in technology and fuel choice. Simulations with a quantitative agent-based model of a competitive electricity generation sector show that under both policies CO2 emissions increase for 10-15 years due to the long life cycle of power plants. Dramatic reductions materialize after 20-40 years when a tight cap or sufficient tax level is maintained. When taxes are set equivalent to trading prices, taxation induces earlier investment in CO2 abatement, a better balance between capital and operating costs and lower long-run electricity prices.
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Chappin_2010.pdf
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