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Managing Costs in a U.S. Greenhouse Gas Trading Program: A Workshop Summary

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  • Tatsutani, Marika
  • Pizer, William A.

Abstract

Cost containment has emerged as a major point of contention in the current congressional debate about designing a cap-and-trade program to limit future U.S. greenhouse gas (GHG) emissions. This paper reviews basic concepts and policy options for cost management, drawing on a March 2008 workshop sponsored by Resources for the Future (RFF), the National Commission on Energy Policy, and Duke University’s Nicholas Institute for Environmental Policy Solutions. The different sources and temporal dimensions of cost uncertainty are explored, along with possible mechanisms for addressing short- and long-term cost concerns, including banking and borrowing, emissions offsets, a price cap (or safety valve), quantity-limited allowance reserve, and the concept of an oversight entity for GHG allowance markets modeled on the Federal Reserve. Recognizing that the inherent trade-off between environmental certainty and cost certainty has no perfect solution, the paper nonetheless concludes that numerous options exist for striking a reasonable and politically viable balance between these two objectives. In the effort to forge consensus around a particular set of options, it will be important for policymakers to strive to fit the remedy to the problem they are trying to solve and to preserve the underlying integrity of the overall program in terms of its long-term ability to sustain meaningful market incentives for low-carbon technologies.

Suggested Citation

  • Tatsutani, Marika & Pizer, William A., 2008. "Managing Costs in a U.S. Greenhouse Gas Trading Program: A Workshop Summary," Discussion Papers dp-08-23, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-08-23
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    Cited by:

    1. de Perthuis, Christian & Trotignon, Raphael, 2014. "Governance of CO2 markets: Lessons from the EU ETS," Energy Policy, Elsevier, vol. 75(C), pages 100-106.
    2. Brian C. Murray & Richard G. Newell & William A. Pizer, 2009. "Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 84-103, Winter.
    3. Judson Jaffe & Robert N. Stavins, 2008. "Linkage of Tradable Permit Systems in International Climate Policy Architecture," NBER Working Papers 14432, National Bureau of Economic Research, Inc.
    4. Anderson, Brilé & Bernauer, Thomas, 2016. "How much carbon offsetting and where? Implications of efficiency, effectiveness, and ethicality considerations for public opinion formation," Energy Policy, Elsevier, vol. 94(C), pages 387-395.
    5. Claudia Kettner & Daniela Kletzan-Slamanig & Angela Köppl & Thomas Schinko & Andreas Türk, 2011. "ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2 Price. Price Volatility in Carbon Markets: Why it Matters and How it Can be ," WIFO Working Papers 409, WIFO.

    More about this item

    Keywords

    cost containment; greenhouse gases; cap-and-trade; safety valve; allowance reserve; uncertainty; banking and borrowing; offsets; price volatility; carbon Fed;

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