Safe Markets Development Approach
Congressmen Doggett and Cooper Press Announcement, 3/23/09 -- Cooper, Doggett unveil new approach to reducing global warming without market manipulation
Press Release: March 26, 2009 -- CCAP Tells Congress Safe Markets Approach Eliminates Price Volatility, Achieves Emission Reduction Goals
March 26, 2009 -- Testimony of William Whitesell before the House Committee on Ways and Means: the Safe Markets Development Approach
Safe Markets MEDIA COVERAGE
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Developed by the Center for Clean Air Policy, the Safe Markets Development Approach responds to concerns about the possibility of high costs, market manipulation and speculators interfering with new carbon markets.
This new approach creates predictable allowance prices and meets critical 2020 emissions goals. These procedures act as "training wheels" during Phase I (2012 through 2019) of the program and enforce a cumulative emissions budget for the period while also allowing some fluctuation in annual emissions. Beginning in 2020, Phase II reverts to a more traditional cap-and-trade approach with annual emissions caps.
HOW THE SAFE MARKETS DEVELOPMENT APPROACH WORKS
Setting the Price Path. Each year of Phase I an independent Board establishes a predicted annual allowance price path for the entire Phase I period with the goal of meeting annual and cumulative emissions targets. Four quarterly auctions are held each year and are designed to maintain this price on average.
Reviewing Performance and Adjusting the Price Path Annually. Each year the Board reviews emissions performance for the previous year and adjusts its price projections if needed to ensure that the gradual trend path of emissions reductions is in line to achieve the 2020 emission target.
BENEFITS OF THE SAFE MARKETS DEVELOPMENT APPROACH
Creates Price Predictability. The Approach creates a predictable and gradually rising path for allowance prices that provides regulated entities with greater confidence in the returns they would earn on greenhouse gas (GHG) mitigation investments. The predictability and stability of the price will help sustain technology investments needed to meet environmental goals.
Assures Environmental Integrity. The independent Board is composed of experts whose mandate is to establish the allowance price necessary to achieve the annual and cumulative emissions targets. The cumulative emissions goal for Phase I is enforceable. In the unlikely event that cumulative emissions exceed expectations at the end of Phase I, the difference is made up by reducing the annual emissions targets over the next decade to maintain the necessary overall emissions reductions.
Prevents Allowance Price Booms and Busts and Market Manipulation. Creating a predictable price for allowances prevents the price from rising too high or dropping too low and, therefore, virtually eliminates opportunities for speculators, traders or investors to manipulate the market.
Ensures Transparency. Transparency of the Board’s activities is ensured through required annual testimony before Congress regarding price projections and the progress toward achieving the 2020 emission goal.
Gives New Market Participants and Regulators Time to Adjust. The Approach provides confidence in the early years of the program when there are many new market participants and untested regulatory mechanisms. It also provides time for government agencies to test their monitoring, surveillance and enforcement mechanisms.
