Addressing Climate Change With a Comprehensive U.S. Cap-and-Trade System

• Date: 01 August 2009

39 ELR 10752 ENVIRONMENTAL LAW REPORTER 8-2009

A R T I C L E

Addressing Climate Change

With a Comprehensive U.S.

Cap-and-Trade System

by Robert N. Stavins

Robert N. Stavins is the Albert Pratt Professor of Business and Government at the John F. Kennedy School

of Government, Harvard University, and a University Fellow at Resources for the Future.

I. Introduction

e impetus for a mea ningful U.S. climate policy is grow-

ing. Scientic evidence has increased (Intergovernmental

Panel on Climate Change, 2007a, b), public concern has been

magnied, and many people perceive what they believe to be

evidence of climate change in progress. Such concern is rein-

forced by the aggressive positions of key advocacy groups,

which are no longer limited on this issue to the usual environ-

mental interest groups; religious lobbies, for example, have

also been vocal. is has been reected in greatly heightened

attention by the news media. e overall result is that a large

and growing sha re of the U.S. population now believes that

government action is warranted (Bannon et al., 2007).

In the absence of federal policy, regions, states, and even

cities have moved forward with their own proposals for

policies intended to reduce the emissions of carbon dioxide

(CO2)and other greenhouse gases. Partly in response to fears

of a fract ured set of regional policies, a n increasing number

of large corporations, sometimes acting individually, and

at other times in coalitions—together with environmental

advocacy groups—have announced their support for serious

national action. Building upon this is the April 20 07 U.S.

Supreme Court decision that the Administration has the leg-

islative authority to regulate CO2 emissions,1 as well as ongo-

ing pressure from European and other nations for the United

States to re-establish its international credibility in this realm

by enacting a meaningful domestic climate policy.

us, momentum is clearly building towards the enaction

of a domestic climate-change policy. But there should be no

mistake about it—meaningful action to address global cli-

mate change will be costly. is is a key “inconvenient truth”

that must be recognized when policymakers construct and

1. Massachusetts et al. v. Environmental Protection Agency et al., No. 05-1120,

argued November 29, 2006, decided Apr. 2, 2007.

evaluate proposals, because a policy’s specic design will

greatly aect its ability to achieve its environmental goals, its

costs, and the distribution of those costs.

ere is general consensus among economists and policy

analysts that a market-based policy instrument targeting

CO2 emissions—and potentially some non-CO2 green-

house-gas (GHG) emissions—should be a central element of

any domestic climate policy. is is reected in international

assessments of national policy instruments, as well (Intergov-

ernmental Panel on Climate Change, 2007c). While there

are trade os between two alternative market-based instru-

ments—a cap-a nd-trade system and a carbon t ax—the best

and most likely approach for the short to medium term in the

United States is a cap-and-trade system.

It is critical to identify the most eective, lowest-cost, and

most equitable policy design at t he outset, because any pol-

icy design once in place can be dicult to change (Repetto,

2007). e environmental integrity of a domestic cap-and-

trade system for climate change ca n be maximized and its

costs and risks minimized by: targeting all fossil-fuel-related

CO2 emissions through an upstream, economywide cap;

setting a trajectory of caps over time that begins modestly

and gradually becomes more stringent, establishing a long-

run price signal to encourage investment; adopting mecha-

nisms to protect against cost uncertainty; and including

linkages with the climate-policy actions of other countries.

Importantly, by providing the option to mitigate economic

impacts through the distribution of emission allowances, this

approach can establish consensus for a policy that achieves

meaningful emission reductions.

It is for these reasons and others that cap-and-trade sys-

tems have been used increasingly in t he United States to

address an array of environmental problems, including the

phase-out of leaded gasoline in the 1980s, the reduction of

sulphur dioxide (SO2) and nitrogen oxide (NOx) emissions

from power plants beginning in 1995, and the phase-out of

chlorouorocarbons (CFCs) (Stavins, 2003).

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P 298 (2008) and is reprinted with permission.

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