Special Report: Design Issues for Market-based Greenhouse Gas Reduction Strategies

Last fall CERA facilitated four public workshops in Washington, DC, supported by the National Commission on Energy Policy and the Edison Electric Institute, which explored the most critical market design elements for a greenhouse gas (GHG) emissions trading program if the US federal government were to develop a mandatory policy. Over 120 organizations representing a variety of industries, academic institutions, nongovernmental organizations, and government participated in the dialogue. This summary report is being provided to our European Power clients as we believe it provides some useful context to understanding the current debate on emissions trading in the United States. The critical issues identified by workshop participants fall into three major areas.

* Point of regulation: A broad, economywide GHG market is desirable. Workshop participants note that economywide approaches to a GHG market are desirable in order to leverage emission reductions and economic efficiencies across all major sectors.
* Allowance allocations: Allocations provide a means to compensate regulated and nonregulated entities for GHG costs. The large value of emission allowances in a GHG program and the potentially significant costs make it desirable to consider how allowance allocations can be used to equitably compensate a wide range of affected (regulated and nonregulated) entities.
* Technology innovation and development: Near-term policies should support long-term technology goals. There was general agreement among participants that expanded use of advanced technologies in all major economic sectors, including power generation and transportation, is needed to adequately address climate change concerns. Many believe this is best inspired by the combination of a market signal and a long-term commitment to technology development.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.