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

26 Pages Posted: 20 Aug 2008 Last revised: 29 Oct 2013

See all articles by Marika Tatsutani

Marika Tatsutani

affiliation not provided to SSRN

William A. Pizer

Duke University

Date Written: July 15, 2008

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.

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

Suggested Citation

Tatsutani, Marika and Pizer, William A., Managing Costs in a U.S. Greenhouse Gas Trading Program: A Workshop Summary (July 15, 2008). RFF Discussion Paper No. 08-23. Available at SSRN: https://ssrn.com/abstract=1238804 or http://dx.doi.org/10.2139/ssrn.1238804

Marika Tatsutani (Contact Author)

affiliation not provided to SSRN ( email )

William A. Pizer

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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