We report on an economic experiment that compares outcomes in electricity markets subject to carbon-tax and cap-and-trade policies. Under conditions of uncertainty, price-based and quantity-based policy instruments cannot be truly equivalent, so we compared three matched carbon-tax/cap-and-trade pairs with equivalent emissions targets, mean emissions, and mean carbon prices, respectively.
Abstract
Politicians in a number of jurisdictions with cap-and-trade markets for greenhouse gas (GHG) emissions or carbon taxes have argued that the evidence is in and the conclusion is clear: Carbon pricing doesn’t work. A number of journalists and environmental groups have jumped on the bandwagon, amplifying a misguided message.
There have been dramatic advances in understanding the physical science of climate change, facilitated by substantial and reliable research support. The social value of these advances depends on understanding their implications for society, an arena where research support has been more modest and research progress slower. Some advances have been made in understanding and formalizing climate-economy linkages, but knowledge gaps remain [e.g., as discussed in (1, 2)].
This paper summarizes the lessons learned from implementing a realistic, game-based simulation of California’s electricity market with a cap-and-trade market for greenhouse gas (GHG) emissions and fixed-price forward financial contracts for energy. Sophisticated market participants competed to maximize their returns under stressed (high carbon price) market conditions. Our simulation exhibited volatile carbon prices that could be influenced by strategic behavior of market participants.
To maximize environmental benefits from the rollout of its cap-and-trade program for greenhouse gas emissions, California should focus on achieving a positive demonstration effect from the program by doing as little as possible to harm the state's economy, as transparently as possible and as fast as possible.
Reducing carbon-dioxide emissions is primarily a political problem, rather than a technological one. This fact was well illustrated by the fate of the 2009 climate bill that barely passed the U.S. House of Representatives and never came up for a vote in the Senate. The House bill was already quite weak, containing many exceptions for agriculture and other industries, subsidies for nuclear power and increasingly long deadlines for action. In the Senate, both Republicans and Democrats from coal-dependent states sealed its fate.
Voluntary opt-in programs to reduce emissions in unregulated sectors or countries have spurred considerable discussion. Since any regulator will make errors in predicting baselines and participants will self-select into the program, adverse selection will reduce efficiency and possibly environmental integrity. In contrast, pure subsidies lead to full participation but require large financial transfers.
Carbon capture and storage (CCS) is now widely viewed as imperative for global climate stabilisation. Coal is the world’s fastest growing fossil fuel, and coal combustion is now the largest single source of anthropogenic CO2 emissions.
Sectoral crediting mechanisms such as sectoral no-lose targets have been proposed as a way to provide incentives for emission reductions in developing countries as part of an international climate agreement, and scale up carbon trading from the project-level Clean Development Mechanism to the sectoral level.
The capture and permanent storage of CO2 emissions from coal combustion is now widely viewed as imperative for stabilization of the global climate. Coal is the world’s fastest growing fossil fuel. This trend presents a forceful case for the development and wide dissemination of technologies that can decouple coal consumption from CO2 emissions—the leading candidate technology to do this is carbon capture and storage (CCS).
Project development is particularly challenging in “frontier” environments where alternative technologies, conflicting laws and agencies, and uncertain benefits or risks constrain the knowledge or decisions of participants. Carbon capture and storage (“CCS”) projects by means of geologic sequestration are pursued in such an environment. In these circumstances, entrepreneurs can seek to employ two distinct types of tools: the game-changer, being an improvement to the status quo for all those similarly situated, generally ac
This paper analyzes the potential contribution of carbon capture and storage (CCS) technologies to greenhouse gas emissions reductions in the U.S.
In this new working paper PESD research affiliate Danny Cullenward studies the required rates of growth and capital investments needed to meet various long-term projections for CCS. Using the PESD Carbon Storage Database as a baseline, this paper creates four empirically-grounded scenarios about the development of the CCS industry to 2020. These possible starting points (the scenarios) are then used to calculate the sustained growth needed to meet CO2 storage estimates reported by the IPCC over the course of this century (out to 2100).
Carbon capture and storage (CCS) is a promising technology that might allow for significant reductions in CO2 emissions. But at present CCS is very expensive and its performance is highly uncertain at the scale of commercial power plants. Such challenges to deployment, though, are not new to students of technological change. Several successful technologies, including energy technologies, have faced similar challenges as CCS faces now.
Carbon capture and storage (CCS) is among the technologies with greatest potential leverage to combat climate change. According to the PRISM analysis, a technology assessment performed by the Electric Power Research Institute (EPRI), wide deployment of CCS after 2020 in the US power sector alone could reduce emissions by approximately 350 million tonnes of CO2 per year (Mt CO2/yr) by 2030, a conclusion echoed by the McKinsey U.S. Mid-range Greenhouse Gas Abatement Curve 2030.
As the United States designs its strategy for regulating emissions of greenhouse gases, two central issues have emerged. One is how to limit the cost of compliance while still maintaining environmental integrity. The other is how to "engage" developing countries in serious efforts to limit emissions.
National Security Consequences of U.S. Oil Dependency, a report by the Council on Foreign Relations Independent Task Force on Energy, concludes that the “lack of sustained attention to energy issues is undercutting U.S. foreign policy and U.S. national security.” The report goes on to examine how America’s dependence on imported oil—which currently comprises 60 percent of consumption— increasingly puts it into competition with other energy importers, notably the rapidly growing economies of China and India.
Uncertainty can hamper the stringency of commitments under cap and trade schemes. We assess how well intensity targets, where countries' permit allocations are indexed to future realised GDP, can cope with uncertainties in a post-Kyoto international greenhouse emissions trading scheme. We present some empirical foundations for intensity targets and derive a simple rule for the optimal degree of indexation to GDP.
The stellar performance of BP's emission control program has led many observers, inside and outside BP, to ascribe success to the firm's emissions trading system. As countries and other firms have considered the adoption of trading systems they often point to BP's pioneering experience as a guiding star. Yet no study has ever explained the operation and impact of BP's trading system. Which factors truly drove the leaders of BP's business units to cut emissions? What lessons should be learned from BP's experience to guide other trading systems?
