Optimal intensity targets for emissions trading under uncertainty
John C.V. Pezzey
Program on Energy and Sustainable Development Working Paper #41
Uncertainty can hamper the stringency of commitments under cap and trade schemes. We assess how well intensity targets, where countries' permit allocations are indexed to future realised GDP, can cope with uncertainties in a post-Kyoto international greenhouse emissions trading scheme. We present some empirical foundations for intensity targets and derive a simple rule for the optimal degree of indexation to GDP.