Tradable performance standards in a dynamic context

Many sectors of the economy that are targets emissions reduction policy exhibit price-responsive demand, long-lived capital, capacity constraints, and foresighted decision-making. I explore how these features affect efficiency dynamics tradable performance standards (TPS) using analytical numerical equilibrium models. While show dynamic considerations alone do not lead to conflicts with existing theory on overall cost-effectiveness TPS relative a first-best policy, they transition path steady state. Most notably, under all but smallest discount rates, can more cost-effective post-transition state than equivalent cap. Given intergenerational comes decarbonization, this result suggests some classes present future consumers may prefer an