Dynamic welfare implications of market-based climate policy under demand uncertainty
利用电厂调查数据和电力批发需求的高频变化，研究了碳税与总量管制交易制度在需求不确定性下的福利差异，发现碳税在多数减排目标下优于总量管制。
The welfare consequences of price versus quantity-based regulation are known to differ when information about marginal benefits or costs of abatement is imperfect. Does uncertainty about demand for the polluting good also matter for welfare of these two approaches to regulation? Using plant-level survey data and high frequency variation in wholesale electricity demand, I assess the dynamic implications of uncertainty about future demand for the relative welfare consequences of carbon taxes and cap-and-trade regulation. I address this question in the context of the electricity sector where demand risk is particularly salient. I show that the choice between policy instruments depends on how firms and consumers balance unpredictable output volatility (higher with carbon taxes) vs. price volatility (higher with cap-and-trade regulation). Over a wide range of policy-relevant abatement targets, I find carbon taxes outperform cap-and-trade in terms of welfare.