Book contents
- Frontmatter
- Contents
- List of Figures and Tables
- Acknowledgments
- Introduction
- PART ONE EARTH'S CLIMATE HISTORY AND OUTLOOK
- PART TWO CLIMATE POLICY CHOICES
- 7 Climate Policy Goals
- 8 Policy Mandates and Market-Based Instruments
- 9 The Design of Cap-and-Trade Programs
- 10 Prices, Quantities, and Lessons from Monetary Policy
- 11 The Outlook for Climate Policies
- Appendix: Discount Rates in Climate Analysis
- References
- Index
9 - The Design of Cap-and-Trade Programs
Published online by Cambridge University Press: 01 June 2011
- Frontmatter
- Contents
- List of Figures and Tables
- Acknowledgments
- Introduction
- PART ONE EARTH'S CLIMATE HISTORY AND OUTLOOK
- PART TWO CLIMATE POLICY CHOICES
- 7 Climate Policy Goals
- 8 Policy Mandates and Market-Based Instruments
- 9 The Design of Cap-and-Trade Programs
- 10 Prices, Quantities, and Lessons from Monetary Policy
- 11 The Outlook for Climate Policies
- Appendix: Discount Rates in Climate Analysis
- References
- Index
Summary
Cap-and-trade systems have widely differing designs. The details determine how effectively emission mitigation goals are met and at what cost to society. They also affect how the large costs and potential gains from the program are distributed. This chapter begins by discussing the basic components of cap-and-trade systems. It then reviews the cap-and-trade programs that have been developed and proposed for the United States and the program created in Europe to implement the Kyoto Protocol.
CAP-AND-TRADE: WHO GETS REGULATED?
As in the case of a tax, an upstream or downstream approach could be employed for cap-and-trade. In a downstream system, any enterprise above a certain size or level of emissions would be required to surrender emission allowances. In an upstream system, oil refineries and natural gas pipelines would be required to submit allowances not only for their own emissions but also for the fuel they sell. Allowances would be required for fuel sales to cover the emissions that occur when downstream users burn the fuel. The refineries and pipelines could do nothing to abate the emissions associated with their sale of fuels. However, the requirement to surrender allowances would boost their costs and those cost increases would be passed on to downstream users in the form of higher prices. The resulting price signal would provide an incentive for consumers to increase energy efficiency. Spurring energy-saving activities by fuel users is a key advantage of this upstream approach, along with lower costs of monitoring and enforcement.
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- Information
- Climate Policy FoundationsScience and Economics with Lessons from Monetary Regulation, pp. 157 - 177Publisher: Cambridge University PressPrint publication year: 2011