In November 2003, the Aspen Institute and the Pew Center on Global Climate Change jointly held a meeting at the Wye River Center on Climate Control to explore the feasibility of possible policy options for a US climate program. The report on that meeting, A Climate Policy Framework: Balancing Policy and Politics, was published by the Aspen Institute and contains a chapter written by NERA Senior Vice President and Environment Practice Chair Dr. David Harrison.
Dr. Harrison's chapter, “Assessing the Financial Consequences to Firms and Households of a Downstream Cap-and-Trade Program to Reduce US Greenhouse Gas Emissions,” focuses on three key elements: initial allocations, product market conditions, and international carbon dioxide allowance prices. In addressing these three key issues, Dr. Harrison notes that the initial allocation of allowances could directly affect overall program costs and, for that reason, has proved to be a contentious issue in existing cap-and-trade programs.
Additionally, Dr. Harrison explains that the ultimate financial impact of any cap-and-trade program would depend upon each firm's product market—specifically, whether “opportunity costs” of allowances would be passed on to customers and whether firms operate in local/national markets, or in international markets that would be largely unaffected by carbon dioxide concerns. For example, the financial effects of a US cap-and-trade program would depend on the ability of US participants to trade allowances internationally, a scenario in which international prices for carbon dioxide allowances would would limit the overall cost of the program in the US.
In closing his discussion, Dr. Harrison draws several conclusions:
- Details matter in assessing financial consequences;
- Most details affect distributional considerations; and
- Emissions trading is well suited for controlling carbon dioxide and other GHG emissions.
Click on the login link below to access Dr. Harrison's chapter of this report.
