Banking on Allowances: The EPA’s Mixed Record in Managing Emissions-Market Transitions

Resources for the Future Discussions Paper No. 10-42

48 Pages Posted: 30 Sep 2010

See all articles by Arthur G. Fraas

Arthur G. Fraas

Resources for the Future

Nathan D. Richardson

University of South Carolina - Law Library; Resources for the Future

Date Written: September 28, 2010

Abstract

The history of emissions-trading markets in the United States is marked by change. Since cap-and-trade programs were first implemented on a large scale after the 1990 Amendments to the Clean Air Act, the U.S. Environmental Protection Agency (EPA) has repeatedly revised and replaced emissions-trading markets for nitrous oxides and sulfur dioxide. In each transition, the agency has had to decide what to do with emissions allowances banked in the earlier program. These banked allowances represent early reductions in emissions, with corresponding environmental benefits, but also the expectation on the part of regulated entities that they will continue to hold value in the future. Unsettling these expectations can lead to price volatility, instability in markets, and erosion of buy-in from regulated entities and the credibility of regulators. The paper discusses EPA’s mixed record regarding these transitions and implications for the future of cap and trade as a policy tool.

Keywords: cap and trade, nitrous oxides, sulfur dioxide, banking, borrowing, CAIR, NOx SIP Call, Transport Rule, Clean Air Act, EPA

Suggested Citation

Fraas, Arthur G. and Richardson, Nathan D., Banking on Allowances: The EPA’s Mixed Record in Managing Emissions-Market Transitions (September 28, 2010). Resources for the Future Discussions Paper No. 10-42. Available at SSRN: https://ssrn.com/abstract=1684085 or http://dx.doi.org/10.2139/ssrn.1684085

Arthur G. Fraas

Resources for the Future ( email )

1616 P ST, NW
Washington, DC 20036
United States

Nathan D. Richardson (Contact Author)

University of South Carolina - Law Library ( email )

1525 Senate Street
Columbia, SC 29208
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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