Using Market-Based Tools to Achieve Meaningful Carbon Emissions Reductions in the United States
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Date
2017-05
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Abstract
Carbon emissions are directly and unequivocally linked to anthropogenic climate change. Reducing carbon emissions will mitigate the effects of anthropogenic climate change, which include immediate and sustained harm to public health, environmental integrity, national security, and economic growth in the United States. The most economically efficient way to reduce carbon emissions is to implement a cap-and-trade carbon market scheme on the US national level. Relevant topics include the possible distinction between the Social Cost of Carbon and the socially optimal level of emissions, technocratic and defense strategic concerns relating to climate change and mitigation, and the technological challenges to carbon emissions reductions involving electric grid reliability and power generation. Although a carbon tax is perhaps appealing as a tool which in theory can quickly slash emissions, problems could arise due to regulatory gridlock, market leakage, and inconsistent revenue allocation. Thus, a market-based cap-and-trade scheme is instead proposed.
To determine whether the stated emissions reductions target of the Clean Power Plan may be achieved using market instruments alone, a trended forecast analysis was performed wherein several existing cap-and-trade schemes and carbon markets and relevant factors were analyzed and the European Union Emissions Trading Scheme (EU ETS) was determined to be the best fit model for a national US carbon market. Although the EU ETS model may decrease emissions compared to the US “business as usual” course of action, it alone cannot achieve the target emissions reductions prescribed in the Clean Power Plan. However, it is possible that the achievable level of emissions reductions based on the EU ETS model is closer to a more appropriate socially optimal level of emissions. Because the model and methodology are necessarily imperfect, a national US carbon market based on the EU ETS market scheme will need to incorporate lessons and best practices learned from the other analyzed models as well. Finally, although the EU ETS model may be successful for the national US carbon market scheme, alternative strategies such as resurrecting and improving the Clean Power Plan, linking existing regional carbon markets, involving RTOs/ISOs in carbon market formulation, and removing unfair tax advantages from traditional oil and gas producers may also be helpful in ultimately reducing carbon emissions in the US with market tools and without the need for superfluous regulation.
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carbon market, cap and trade, emissions trading, carbon allowance