Seminar: Sarah Polborn, Pennsylvania State University.

Title: The Political Economy of Carbon Securities and Environmental Policy.

Abstract:

The paper studies carbon abatement policy instruments from a political economy perspective. It illustrates some problems with both traditional cap and trade systems and carbon taxation and then proceeds to propose an alternative policy instrument with signi.cant advantages over these systems. The key feature of the proposed carbon securities is that they entitle their owners to a fixed proportion of ex ante unknown total emissions. The total level of carbon emissions is set by the political process after the carbon securities have been sold. In contrast to a traditional permit system, in which a government.s choice of emissions quota is in.uenced by one lobby which represents industries that consume significant amounts of carbon-based energy, a system based on carbon securities creates an additional group of stakeholders with a strong incentive to organize and influence the government.s choice of an emission level. The advantages over existing systems include stronger commitment to abatement policy, an equilibrium carbon price closer to the social optimum, a more predictable environmental policy in the presence of either climate or political uncertainty, and higher investment in abatement technology.