Bill Would Create Confidence in Early Stages of New U.S. Cap-and-Trade Program

Washington, D.C. — Congress can develop legislation to reduce greenhouse gas emissions that contain costs by using the Center for Clean Air Policy’s (CCAP) Safe Markets Development Approach, a senior policy advisor for the group said during a House Ways and Means Committee hearing today.

Bill Whitesell, director of policy research at CCAP, a Washington, D.C.-based climate change think tank, said the Approach strikes the right balance between a carbon tax and pure cap-and-trade. It would eliminate incentives for manipulation and speculative excess in the early years of a cap-and-trade program and would create confidence in a new carbon market.

“Fixing the price of carbon permanently through a carbon tax may not generate sufficient emission reductions to reduce climate risks to acceptable levels. On the other hand, under a pure cap-and-trade program, allowance prices may become volatile and allow for market manipulation and speculative excess that could cause booms and busts in prices, just as we have seen recently in commodity and financial markets,” said Whitesell. “The Safe Markets Approach combines the best features of cap-and-trade and carbon taxes. It provides a high level of environmental integrity along with predictable carbon prices.”

The Approach is the basis of H.R. 1666, The Safe Markets Development Act, introduced by U.S. Reps. Lloyd Doggett (D-Tex.) and Jim Cooper (D-Tenn.). Under the proposal in each year of Phase I (2012-2019) an independent Board establishes a predicted annual allowance price path for the entire 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. 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.  Beginning in 2020, Phase II moves to a more traditional cap-and-trade approach with annual emissions caps. 

Whitesell emphasized that the Approach seeks a middle ground solution and modifies a traditional cap-and-trade program in its early years by shifting from enforcing annual emissions targets to enforcing cumulative emissions over several years.

“Scientific evidence does not compel solutions focused only on fixed annual emissions reductions. What matters for the climate are the cumulative greenhouse gas emissions,” said Whitesell. “CO2 is an ideal pollutant for application of Safe Markets as we do not face any short-term environmental health trade-off by allowing some annual variability in cap levels.”

###