ARB Research Seminar
This page updated July 24, 2013
Design Elements for a Successful CO₂ Trading Program
Dallas Burtraw, Ph.D., Senior Fellow, Resources for the Future
October 20, 2006
Cal EPA Headquarters, 1001 "I" Street, Sacramento, CA
Previous experience with regulation of conventional pollutants (SO2 and NOx) in the U.S. and CO2 in Europe indicate that cap and trade programs can be successful in achieving environmental goals. Evidence suggests these approaches can achieve significant cost savings compared to prescriptive approaches to regulation. Given the depth of emission reductions that may be required in the future, cost effectiveness in regulatory programs is probably essential for success. However, market based policies have not always proven successful in environmental or economic terms. And like any policy, they interact with other public policy goals and regulatory programs and they create their own set of winners and losers.
This presentation will review basic design features that contributed to the success of previous emission trading programs, as well as offer a critical evaluation of those programs. Among key issues to be reviewed are the legal framework and regulatory authority, transparency, monitoring and enforcement, and how well the programs enable spatial and temporal flexibility in compliance, and the effect of flexibility on the environmental outcome. A key issue that has emerged in the application of a CO2 trading program is separation between the point of compliance responsibility in the program and the initial distribution of emission allowances, which can entail the creation and transfer of billions of dollars per year in value. The potential implementation of a state-level program in California raises specific issues and opportunities.
Dr. Burtraw is a Senior Fellow at Resources for the Future. Dr. Burtraw earned a Ph.D. in Economics from the University of Michigan in 1989. He also has a Master in Public Policy degree from the University of Michigan and a Bachelor of Science degree from the University of California, Davis. Dr. Burtraw has studied the design of incentive-based environmental policies in the electricity industry and has authored extensively on the performance of emission trading programs in the U.S. for sulfur dioxide and nitrogen oxides, and on the performance of the European Union Emission Trading System for carbon dioxide. He currently serves on the EPA Advisory Council on Clean Air Compliance Analysis, and on the National Academies of Science Board on Environmental Studies and Toxicology.