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Comments on Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System 1 (March 2006)

handle is hein.congrec/cbo0895 and id is 1 raw text is: Coinmen s on Design Elements of a Alan datoT Marlet-Based Greenhouse Gas Regilatotf' Systent In light of concerns that rising concentrations of greenhouse gases in the atmosphere may be affecting the Earth's climate, several Mcnbers of Congress and public interest groups have proposed plans to require cuts in the Uniled States' emissions of those gases. Implementing a cap-and-trade program is an example of one such proposal. Under such a program, policymakers would establish an overall cap on emissions but allow rcgulated firms to trade rights to those emissions, called allowances. That trading would provide an incentive Ibr firms that could reduce their emissions most cheaply to sell some of their allowances to firms that laced higher costs to reduce their emissions. Such an approach would help reduce the costs of achieving the emissions cap. In an effort to lay out some of the key questions and design elements of a national greenhouse gas program, Senators Pete Domenici and Jeff Bingaman in February 2006 issued a white paper, Design Elenents of'a fandator.' Market-BaseI Greenhouse Gas Reguhatort, Sy'stem. That paper asks four questions: (1) Who is regulated and where? (2) Should the costs of regulation be mitigated for any sector of the economy, through the allocation of allowances without cost'? Or, should allowances be distributed by means of an auction? If allowances are allocated, what is the criteria for and method of such allocations? (3) Should a U.S. system be designed to eventually allow for trading with other greenhouse gas cap-and-trade systems around the world, such as the Canadian Large Final Emitter system or the European Union emissions trading system? (4) Ifa key element of the proposed U.S. system is to 'encourage comparable action by other nations that are major trading partners and key contributors to global emissions,' should the design concepts of the National Commission on Energy Policy plan (i.e., to take some actions and then to make furlher steps contingent on the review of what these other nations do) be part of a mandatory market-based program? If so, how'! Further, the white paper solicits conunents on any additional topic related to the design ot'a mandatory market-based program. The Congressional Budget Office (CBO) has issued several papers that address issues raised in the white paper.' I See Congressional Budget 0111ce, Who (ains and Wf'ho Iars in;der Dl-ononcc i'adig? The Dlistrihutional llf ts of ,Alternative 'olic', Desvigns (June 20110): ,In Evalintion oft tl,-and- Trade ruogras. fn Reducing U.S. Carbon Emnisvions (Julie 2011 ); The Econotie'v qu (liuate Chang': ,4 Primer (April 200.3); The Eronomic Costs oqfReducing Emi.sions of Gree'nhouuse( Gisek.:

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