President Bush and other leaders of the Group of Eight pledged yesterday to try to reduce greenhouse gas emissions 50 percent by 2050. A key consideration in evaluating climate policies is the economic cost of cutting emissions. That cost could be reduced, perhaps by a lot, depending on two key questions about domestic climate policies: whether flexibility is provided when emissions are reduced and whether allowances to emit carbon are sold or given away.

The most common proposal for reducing carbon emissions involves a cap-and-trade program. Such programs provide flexibility regarding where and how firms reduce emissions. That's a good start, but research suggests that businesses also need flexibility about when they reduce emissions if they are to minimize economic costs.…  Seguir leyendo »