Publication

This paper discusses climate policies with regard to credible long-term incentives for investments in energy-sector capital and in research and development. The authors argue that credibility implies that international agreements should focus on enhancing coordination and collaboration between countries rather than on coercion. At the national level, credibility requires political and economic incentives that can be provided by long-term tradable emissions permits, but it needs more flexibility than can be provided by a conventional permit system. The authors argue that the best mechanism for providing credible long-term incentives is a hybrid system of long- and short-term emissions permits.