Given the uncertainty over the price of carbon under a likely federal cap-and trade system, safeguards should be developed to prevent the cost from becoming too low or too high. During an April 3 Resources For the Future climate change conference in San Francisco, RFF speakers laid out strategies for protecting a U.S. trading scheme from undermining real carbon reductions and investments in carbon light technology. When federal climate change legislation does pass, strategies under discussion to control carbon market price volatility include allowing carbon credits to be saved, or banked, and used in subsequent years to meet a federal emissions cap. Another is to set up an emissions credit reserve in which excess carbon credits would be stored to keep the price from hitting rock bottom and tapped when carbon credits become too tight. Also under discussion is a modified safety valve, which would kick in when carbon prices go too high or too low. A floor is now included in a federal safety valve proposal because of concerns by environmental organizations that cheap carbon would not produce emission cuts. In addition, a low carbon price undermines energy efficiency and renewable energy programs because the value of these state programs is affected by that cost. For example, a low carbon price raises the cost of these programs in California and elsewhere. Also, on the table is creating an independent federal agency to ensure emission reductions are met while protecting the economy. The electricity sector is expected to account for two-thirds to three-fourths of the nation’s emission reduction target. Another matter to be addressed is the roles of the state and federal governments in controlling greenhouse gas emissions under a federal cap-and-trade market, including preemption matters. States traditionally have addressed income and environmental justice issues. The California Air Resources Board, however, has been heavily criticized for giving short shrift to environmental justice concerns as it develops greenhouse gas emission proposals under the state’s climate protection law, AB 32. States also could decide how to allocate emission credits, by giving them away or selling them--or some combination of the two. Editor’s note: For a more detailed version of RFF’s strategies for creating a viable cap-and-trade program see our sister publication, Energy Meets Climate Challenge, E=MC2, www.energymeetsclimate.com
