Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: The costs of the current suboptimal carbon abatement policy are likely in the range of 3 to 6 trillion 2005 US dollars. Using methods from the political economy of environmental policy, the paper develops a new carbon abatement policy instrument, carbon securities. A carbon security entitles its owner to a fixed proportion of ex ante unknown total emissions. This creates an additional group of stakeholders on the side of the issue that has traditionally been underrepresented. The advantages over existing systems include an equilibrium carbon price closer to the social optimum, a more predictable environmental policy, and higher investment in abatement technology

Keywords: Carbon abatement; environmental policy; global warming; interest groups; lobbying; policy instrument design; political process

JEL-codes: D72; Q54; Q58

29 pages, September 7, 2011

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