Three Lingering Design Issues Affecting Market Performance in California's GHG Cap-and-Trade Program

16 Pages Posted: 15 Jan 2014

See all articles by Todd Schatzki

Todd Schatzki

Analysis Group, Inc.

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

Date Written: January 29, 2013

Abstract

California’s GHG cap-and-trade program is a key element of policies designed to achieve the goal of the Global Warming Solutions Act of 2006 (AB 32) to reduce GHG emissions to 1990 levels by the year 2020. Throughout the process of implementing its GHG cap-and-trade program, ARB has shown an admirable willingness to continue discussions to refine and improve the program’s design. Although the program has now entered its first compliance period and has already undertaken its first allowance auction, there is still opportunity for further refinement of a program that will be in effect through 2020. In this spirit, we recommend that ARB consider modifications to three program elements – the Allowance Reserve, offset programs, and holding limits – that would improve program performance without compromising environmental performance. The cap-and-trade program has important consequences both within and outside California. Within California, design of an effective cap-and-trade program will help to lower the economic cost of meeting AB 32’s ambitious emission targets. However, in terms of addressing the climate change problem, California’s greatest impact may come not from the actual emission reductions achieved by the state, but by the leadership it provides on climate policy. As other countries and states watch California’s policy outcomes, they will draw important lessons about which policies can help achieve policy objectives with limited economic disruption, and whether such commitments should be pursued. By developing policies that achieve environmental goals while minimizing economic risks, California can provide a positive example for other jurisdictions considering similar climate commitments.

Keywords: climate change policy, design issues, California

JEL Classification: Q28, Q38, Q48

Suggested Citation

Schatzki, Todd and Stavins, Robert N., Three Lingering Design Issues Affecting Market Performance in California's GHG Cap-and-Trade Program (January 29, 2013). Available at SSRN: https://ssrn.com/abstract=2378668 or http://dx.doi.org/10.2139/ssrn.2378668

Todd Schatzki

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States

Robert N. Stavins (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1820 (Phone)
617-496-3783 (Fax)

Resources for the Future

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National Bureau of Economic Research (NBER) ( email )

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