Tuesday, November 09, 2010

[IWS] CBO: Managing Allowance Prices in a Cap-and-Trade Program [4 November 2010]

IWS Documented News Service
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor----------------------
Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau


Congressional Budget Office (CBO)


Managing Allowance Prices in a Cap-and-Trade Program [4 November 2010]

November 2010




[full-text, 32 pages]






CBO’s Findings


CBO examined the effects on allowance prices and greenhouse gas emissions of three mechanisms that would help prevent allowance prices from reaching unexpected highs and lows: a price ceiling, which would be implemented by offering an unlimited number of allowances for sale at a given price, thereby placing an upper bound on allowance prices; an allowance reserve, in which a limited number of additional allowances would be offered to firms at or above a given price, thereby curtailing but not eliminating price increases beyond that level; and a price floor, which would be implemented by decreasing the number of allowances available at a given time to maintain a lower bound on prices.


An upper bound on allowance prices could prevent the policy’s costs to the economy from being unacceptably high, but it could also cause emissions to exceed the cumulative cap because the bound would be sustained by adding allowances to the program. The effects of a lower bound would depend on whether firms could bank allowances. If banking was not permitted, a lower bound could motivate firms to make additional cuts in emissions over the duration of the policy beyond those that would otherwise be required by the cap. If banking was permitted, firms would probably not make such additional cuts.




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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  



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