Events & Media

Kolstad Is Part of Group Making Recommendations on Cap and Trade

Bren professor of environmental economics Charles Kolstad and colleagues at the Stanford University Institute for Economic Policy Research (SIEPR) and the Bipartisan Center for Research and Policy (BCRP), also at Stanford, have released a series of recommendations for developing a cap-and-trade system as an instrument to reduce California's greenhouse gas (GHG) emissions.

Kolstad participated in a workshop on the subject hosted by UIEPR and BCRP last January, and then worked with recent UCSB PhD graduate Nick Burger and current PhD economics student Corbett Grainger, as well as Oren Ahoobim and Shaun McCrae of the Stanford Department of Economics, to draft a summary of the group's report, titled "Beyond the Market Advisory Committee."

The report is intended to serve as an advisory document to the California Air Resources Board (CARB) as it prepares to vote the week of Dec. 8, 2008, to approve a "Scoping Plan" for the implementation of AB-32, The Global Warming Solutions Act. Passed in August 2006, the law mandates that California reduce the state's (GHG) emissions to 1990 levels by the year 2020. The cap-and-trade system is seen as a major tool in achieving that goal.

From Kolstad's report, Joe Nation of BCRP and Roger Noll of SIEPR, who organized the January workshop, wrote the following bullet points by way of summarizing the report's highlights:

  • The California [cap-and-trade] program may harm the California economy if other jurisdictions do not adopt similar policies.
  • Continuing a more stringent California cap than is required after the federal system is implemented makes no economic sense since California would subsidize the rest of the United States.
  • The most desirable form of emissions trading market is one in which a large fraction of allowances (perhaps all) are auctioned.
  • Economic research on emissions markets concludes that the effect on prices of consumer goods is the same regardless of whether tradable emissions permits are allocated for free or via an auction.
  • Problems associated with effective implementation of an offset program are important and challenging, but they are outweighed by the potential benefits of including offsets in California’s program.

Workshop participants also emphasized that the participation of India and China in a worldwide program to reduce GHG emissions is critical for achieving the necessary reductions in global GHG emissions.

"It is our hope that CARB will carefully consider the findings of this report, which reflect a consensus of leading experts on climate-change policy," said the authors. Please follow the link to read the complete paper.