GHG Cap-and-Trade: Implications for Effective and Efficient Climate Policy in Oregon

Todd Schatzki, Robert N. Stavins
2018 Social Science Research Network  
Like many other states, Oregon has begun to pursue climate policies to attempt to fill the gap created by the lack of effective climate policy at the Federal level. After adopting a variety of policies to address climate change and other environmental impacts from energy use, Oregon is now contemplating the adoption of a greenhouse gas (GHG) cap-and-trade system. However, interactions between policies can have important consequences for environmental and economic outcomes. Thus, as Oregon
more » ... ers taking this step, reconsidering the efficacy of its other current climate policies may better position the state to achieve long-run emission reductions at sustainable economic costs. A Well-Designed GHG Cap-and-Trade Program is a Better Approach to Regulating GHG Emissions Than Alternatives A GHG cap-and-trade system offers many advantages compared with other approaches to reducing GHG emissions. By capping total emissions, a cap-and-trade system provides a high level of emissions certainty. By comparison, policies that target particular activities through standards do not achieve any particular emission target with certainty. In addition, cap-and-trade systems achieve emission reductions at a lower cost than other regulatory approaches by creating a uniform incentive that encourages emission reductions through the least-costly approach. Thus, cap-and-trade creates incentives for sources to undertake the least-costly emission reductions, while forgoing more costly options. Development of a well-designed cap-and-trade system requires careful attention to the details. Prior legislative proposals in Oregon have included elements of a well-designed GHG cap-andtrade system, such as broad economy-wide coverage and flexibility to allow sources to use offsets to cover a portion of compliance obligations. However, many key program design decisions will be left to the program's regulator-the Oregon Environmental Quality Commission. Thus, decisions made in the rulemaking process will have important implications for the program's eventual performance and possible success.
doi:10.2139/ssrn.3287179 fatcat:jzxrfxc5ojfwfn7cnx5cbxdjey