Vice President Todd Schatzki, Affiliate Robert Stavins Examine Potential Economic Risks of California's GHG Cap-and-Trade Program

February 07, 2013

Vice President Todd Schatzki, Ph.D., and Harvard University professor and Analysis Group affiliate Robert Stavins have released a white paper as part of an ongoing series that assesses the economic and regulatory impacts of a suite of climate policies being undertaken in California, a state that many consider a test bed for other parts of the United States and the world considering the adoption of similar policies.

In "Three Lingering Design Issues Affecting Market Performance in California's GHG Cap-and-Trade Program," Dr. Schatzki and Professor Stavins examine three issues in the design of this program -- emissions offsets, allowance holding rules, and the allowance reserve -- and show how failing to address these issues could lead to avoidable economic risks and costs in the future.

Since the program's first GHG allowance auction in fall 2012, regulators and economists in the United States and abroad have turned their attention to California to see whether the program's performance lives up to expectations as a test market for the potential adoption of policy changes. According to Dr. Schatzki, "As the world's ninth-largest economy, California's GHG cap-and-trade program is being watched not only by other states, but by other economies throughout the world. However, further attention to design and implementation is still needed to ensure that the program becomes a model that others can follow, rather than a cautionary tale that delays other countries from making meaningful commitments on climate policy."

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

Other related white papers:

Read "Implications of Policy Interactions for California's Climate Policy"

Read "Using the Value of Allowances from California's GHG Cap-and-Trade System"

Read "Can Options for Cost Containment Raise Costs?"