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Beyond the Market Advisory Committee: Proceedings from a Workshop held at Stanford University, January 15, 2008

Apr 2008
Working Paper
07-045
By  Oren Ahoobim, Nick Burger, Corbett Grainger, Charles Kolstad, Shaun McRae
In 2006, California passed innovative legislation to create a “cap-and-trade” system for controlling greenhouse gas (GHG) emissions. In January 2008, SIEPR hosted a workshop on the problem of designing a workable market for GHG emissions that included scholars, business representatives, government officials, and leaders of environmental groups. Building from the report of the Governor’s Market Advisory Committee of June 2007, the workshop discussed four key issues: (1) linking the California market to other GHG markets and control policies, including those in other states, Europe, and possibly the federal government; (2) regulating emissions “upstream” (e.g., hydrocarbon fuel sales) or “downstream” (e.g., GHG emissions at the point fuel is burned); (3) initially distributing emissions permits by auctioning or giving away permits; and (4) the proper role and scope of “offsets” (reducing emissions from otherwise unregulated activities, such as replanting the rain forest, to create new permits). Although workshop participants did not achieve consensus on the details of how the market ought to be designed, there was considerable support for several important conclusions: (1) California should try to set an example for neighboring western states and the federal government; (2) a major and probably unsolvable problem is “leakage” (whereby emissions reductions by Californians simply lead to emissions increases in other states) unless neighboring states join the California program; (3) at least some permits should be allocated by auction to facilitate the creation of a market; and (4) offsets can play a useful role, but to do so must be regulated carefully to assure that emissions reductions are real.