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A U.S. Cap-and-Trade System to Address Global Climate Change

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  • Stavins, Robert

    (Harvard U and Resources for the Future)

Abstract

The need for a domestic U.S. policy that seriously addresses climate change is increasingly apparent. A cap-and-trade system is the best approach in the short to medium term. Besides providing certainty about emissions levels, cap-and-trade offers an easy means of compensating for the inevitably unequal burdens imposed by climate policy; it is straightforward to harmonize with other countries’ climate policies; it avoids the current political aversion in the United States to taxes; and it has a history of successful adoption in this country. The paper proposes a specific cap-and-trade system with several key features, including an upstream cap on CO2 emissions, with gradual inclusion of other greenhouse gases, a gradual downward trajectory of emissions ceilings over time, to minimize disruption and allow firms and households time to adapt, and mechanisms to reduce cost uncertainty. Initially, half of the program’s allowances would be allocated through auctioning and half through free distribution, primarily to those entities most burdened by the policy. This should help limit potential inequities while bolstering political support. The share distributed for free would phase out over twenty-five years. The auctioned allowances would generate revenue that could be used for a variety of worthwhile public purposes. The system would provide for linkage with international emissions reduction credit arrangements, harmonization over time with effective cap-and-trade systems in other countries, and appropriate linkage with other actions taken abroad that maintains a level playing field between imports and import-competing domestic products.

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Bibliographic Info

Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp07-052.

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Date of creation: Oct 2007
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Handle: RePEc:ecl:harjfk:rwp07-052

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Cited by:
  1. Tisdell, John G. & Grainger, Corinne, 2008. "An Experimental Economic Analysis of Carbon Trading Options for Australia," 2008 Conference, August 28-29, 2008, Nelson, New Zealand 96661, New Zealand Agricultural and Resource Economics Society.
  2. repec:reg:wpaper:456 is not listed on IDEAS
  3. Christian Flachsland & Steffen Brunner & Ottmar Edenhofer & Felix Creutzig, 2010. "Climate policies for road transport revisited (II): Closing the policy gap with cap-and-trade," Working Papers 2, Department of Climate Change Economics, TU Berlin.
  4. Joseph E. Aldy & Robert Stavins, 2011. "The Promise and Problems of Pricing Carbon: Theory and Experience," NBER Working Papers 17569, National Bureau of Economic Research, Inc.
  5. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2011. "Combining multiple climate policy instruments: how not to do it," LSE Research Online Documents on Economics 37573, London School of Economics and Political Science, LSE Library.
  6. Kenneth A. Lewis & Laurence S. Seidman, 2008. "Compensations and contributions under an international carbon treaty," Working Papers 08-03, University of Delaware, Department of Economics.
  7. Robert N. Stavins, 2008. "Addressing Climate Change with a Comprehensive U.S. Cap-and-Trade System," Working Papers 2008.67, Fondazione Eni Enrico Mattei.
  8. Liu, Hengwei & Liang, Xi, 2011. "Strategy for promoting low-carbon technology transfer to developing countries: The case of CCS," Energy Policy, Elsevier, vol. 39(6), pages 3106-3116, June.
  9. Lawrence H. Goulder & Marc A. C. Hafstead & Michael S. Dworsky, 2009. "Impacts of Alternative Emissions Allowance Allocation Methods under a Federal Cap-and-Trade Program," NBER Working Papers 15293, National Bureau of Economic Research, Inc.
  10. Higgins, Paul A.T., 2013. "Frameworks for pricing greenhouse gas emissions and the policy objectives they promote," Energy Policy, Elsevier, vol. 62(C), pages 1301-1308.
  11. Burtraw, Dallas & Szambelan, Sarah Jo, 2009. "U.S. Emissions Trading Markets for SO2 and NOx," Discussion Papers dp-09-40, Resources For the Future.

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