Institute of the Environment and Sustainability

Climate change mitigation requires reduction in emissions of greenhouse gases rather than mere reduction in emission intensity of the economy. Regulations such as the Kyoto Protocol, Emission Trading Scheme, and the Regional Greenhouse Gas Initiative establish an emissions target as opposed to an emission intensity target. The policies implemented till date have also largely targeted emission reduction from power plants and the industries. Recent regulations aimed at controlling greenhouse gas emissions from transportation mandate intensity target for fuels. In this paper we compare abatement cost and output under two types of regulations of transportation fuels, namely, emission intensity standard and emission quota. We do this in the context of a price-taking region, and we focus on the shortrun. We �nd that under an intensity standard pollution abatement cost is higher than or equal at best to that under an emission quota, while aggregate output can be higher or lower than under a quota.