The Design Advocate is an outreach tool to keep the 3200+ architect & design members of AIA Los Angeles updated about pending matters at City Hall, which may impact the built environment & their profession.
Wednesday, March 28, 2012
Will California’s Cap and Trade Program Stimulate Innovation?
New post on Legal Planet: Environmental Law and Policy
Holly's latest post about a new study showing that cap-and-trade programs have not led to technological innovation ends with a cautionary note that raises the key question about innovation and cap-and-trade programs to reduce greenhouse gas emissions:
These results [showing no innovation] don't mean that cap-and-trade has no role to play in policies directed at climate change or other problems whose solution requires innovation. But they emphasize one more time the need to carefully design cap-and-trade programs, and in particular to resist pressures to set the cap too high.
California is about, of course, to launch its cap-and-trade program to reduce greenhouse gas emissions. The state's approach has at least two buillt-in design elements that other cap-and-trade programs have not included and that have the potential to encourage the kind of innovation cap-and-trade proponents have long predicted.
One of the persistent problems in designing cap-and-trade programs to spur innovation has been that the overall cap on emissions is both set too high and then remains too high, leaving prices for allowances lower than initially predicted. As a result, emitters purchase allowances at low prices and then bank them for use in future years and can comply with their allowance limitations quite easily with existing technology. Lesley McAllister has analyzed four major cap-and-trade programs and argued that the caps were set too high -- with resulting low allowance prices -- in each one.
California's program may well avoid the too-high-cap and too-low-allowance-price problem. The most obvious way in which the state may do so is by imposing a cap that declines annually rather than remaining constant over time. The cap will decline by approximately 2 percent between 2012 and 2013, 2 percent between 2013 and 2014 and 3 percent annually until 2020. As compliance costs increase, emitters should seek new ways to reduce emissions at the cheapest price possible in order to avoid paying more for allowances. But the state program also adopts a new and innovative approach to maintaining stability in allowance prices that simultaneously reduces the risk that allowance prices will spike too high while reducing the risk that prices will fall too precipitously. Read more of this post