Economics

Cap-and-levy

IMERS uses a novel hybrid economic instrument that we call cap-and-levy
(it was presented by Norway and others as a hybrid scheme, and was also called cap-and-charge; some people use the name charge-cap-and-trade to signify the trading aspect of the instrument).

A levy (emission charge) is established in such a way that an agreed emission target (cap) will be delivered for international shipping by purchasing emission credits if required.

    The cap-and-levy is:
  • Using a carbon price established by the large emitting industries;
  • Delivering quantity target through a "clearing house" for a sector or its part - a bubble.
Note: Bubble is a regulatory concept whereby several emitters are treated as if they were a single emission source.

GHG Policy Options

Cap-and-levy is an example of GHG policy that has the highest theoretical cost-effectiveness. The different GHG policy options are shown below, ordered from the highest to the lowest cost effectiveness.

  1. Hybrid quantity-price
  2. Tax or charge
  3. Cap-and-trade with banking, borrowing, and allocation auctioning
  4. Traditional cap-and-trade scheme
  5. Non-market regulations and standards