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IEA Releases Study on Effects of Price Caps and Floors in Climate Mitigation Scenarios

Price Caps and Price Floors in Climate Policy 15 December 2008: The International Energy Agency (IEA) has released a study entitled “Price Caps and Price Floors in Climate Policy-A Quantitative Assessment,” which assesses the long-term economic and environmental effects of introducing price caps and price floors in a hypothetical climate change mitigation architecture that aims to reduce global energy-related carbon dioxide emissions by 50% by 2050.

Based on abatement costs in Intergovernmental Panel on Climate Change

(IPCC) and IEA reports, this quantitative analysis confirms that

introducing price caps could significantly reduce economic uncertainty.

This uncertainty stems primarily from: unpredictable economic growth

and energy prices; unabated emission trends; and uncertainty in the

development of abatement technologies. With price caps, the expected

costs could be reduced by about 50% and uncertainty of economic costs

could be one order of magnitude lower. Reducing economic uncertainties

may spur the adoption of more ambitious policies by helping to

alleviate policy makers' concerns of economic risks. Meanwhile, price

floors would reduce the level of emissions beyond the objective if the

abatement costs ended up lower than forecasted. [The Study]