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Cap and Trade

Cap and Trade. What is it? Ethan Elkind Bank of America Climate Change Research Fellow UC Berkeley/UCLA Schools of Law. Why Cap-and-Trade?. Seemed to work with acid rain Certainty of overall emissions Flexibility for businesses (“free market environmentalism”)

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Cap and Trade

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  1. Cap and Trade What is it? Ethan Elkind Bank of America Climate Change Research Fellow UC Berkeley/UCLA Schools of Law

  2. Why Cap-and-Trade? • Seemed to work with acid rain • Certainty of overall emissions • Flexibility for businesses (“free market environmentalism”) • Alternatives: regulation and carbon taxes • Happening around the world

  3. The Cap • Who falls under the cap? • Upstream vs. downstream sources • Limit on total emissions from regulated sources • Declining over time • Setting the cap: gather emissions data

  4. Allowances • Divide capped emissions into allowances • Allowances (or Credits) = right to pollute • Distributing: grandfathering vs. auction • Auction revenue: • dividend or investment • Price floor/ceiling

  5. Trading • Buying/selling allowances among sources • Seller: make more $ selling allowances than reducing emissions • Buyer: cheaper to buy than reduce emissions

  6. Tightening the Cap • Removing allowances: • Retire credits after compliance periods • Percentage removed per trade • Donation • Purchase & retire

  7. Offsets • Credits for carbon reductions by: • Unregulated sources • Agriculture/forestry sector carbon sequestration • Domestic (ag/forestry) or international (developing countries) • Additional, verifiable, quantifiable, real • Compliance and voluntary markets

  8. Are we experienced? • Acid Rain • RECLAIM • European Union • RGGI • Pending: • California (AB 32) • United States (Waxman-Markey) • Western Climate Initiative

  9. Common Challenges • Cap is too high • Price fluctuations • Market gaming • Windfall profits • Monitoring, enforcement, and verification

  10. www.legalplanet.wordpress.comEelkind@law.berkeley.edu

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