Price limits in a tradable performance standard

Tradable performance standards are widely used sectoral regulatory policies. Examples include the US lead phasedown, fuel economy for automobiles, renewable portfolio standards, low carbon and—most recently—China's new national market. At same time, theory and experience with traditional cap-and-trade programs suggest an important role price limits in form of floors, ceilings, reserves. In this paper we develop a simple analytical model to derive welfare comparison between tradable price-based alternative. This works out be variant Weitzman prices-versus-quantities result. We use result show that substantial gains—perhaps 50% or more when prices low—could arise from shifting two programs, China's market California Low Carbon Fuel Standard, mechanism. finding will generally true coefficient variation under TPS is larger than 50%. end brief discussion implementation issues, including consignment auctions.