GHG Cap-and-Trade: Implications for Effective and Efficient Climate Policy in Oregon
The Oregon legislature is actively considering the development of a cap-and-trade system to regulate greenhouse gas (GHG) emissions in their state. To help inform the discussion, Analysis Group Vice President Todd Schatzki and affiliate Robert N. Stavins prepared a white paper titled GHG Cap-and-Trade: Implications for Effective and Efficient Climate Policy in Oregon.
In their white paper, Dr. Schatzki and Professor Stavins compared cap-and-trade to other climate policies, identifying circumstances when policies create incremental benefits and emphasizing the interactions that can arise when climate policies overlap. The authors cautioned that, when other policies regulate the same sources as a cap-and-trade program, few (or no) GHG emissions are reduced and costs typically increase. Given these interactions, they evaluated options available to the state, including hybrid transition options that increase reliance on cap-and-trade, while tapering off use of overlapping policies.
To illustrate the effect of policy interactions, the authors analyzed the emissions and cost impact of interactions between California's GHG cap-and-trade program, which was expanded in 2015 to include transportation fuels, and its Low Carbon Fuel Standard (LCFS). Dr. Schatzki and Professor Stavins found that, when emissions outside of the state (which are not subject to California's policies) are considered, total emissions actually increased over the three years following the overlap of the cap-and-trade and LCFS policies (2015 to 2017). They also found that the LCFS program credit prices increased to roughly 11 times cap-and-trade allowance prices.