Pricing strategies under emissions trading

Pricing strategies under emissions trading: an experimental analysis

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Markus Wråke
Svante Mandell
Erica Myers
Charles Holt
Dallas Burtraw

Transportation within the EU, as in most of the industrialized world, shows an increasing trend in CO2 emissions. This calls for measures both to decrease the amount of transportation and/or to increase the efficiency in the vehicle fleet. The present paper addresses the latter by providing a simple and transparent analytical model that illustrates how different policy measures address different parts of an interlinked system, which determines the composition of the future car fleet. Apart from being simple, and thereby providing an intuitive framework, the model highlights the difference between initial responses to policies and the outcome in equilibrium both in the short and the long run.

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