Beyond the Market Advisory Committee: Proceedings from a Workshop Held at Stanford University

In January 2008, Stanford Institute for Economic Policy Research hosted a workshop on addressing recent legislation creating a “cap-and-trade” system. Four key issues: (1) linking the California market to other GHG markets and control policies, including those in other states, Europe, and possibly the federal government; (2) regulating emissions “upstream” (e.g., hydrocarbon fuel sales) or “downstream” (e.g., GHG emissions at the point fuel is burned); (3) initially distributing emissions permits by auction or give away permits; and (4) the proper role and scope of “offsets” (reducing emissions from otherwise unregulated activities) were discussed although participants did not achieve consensus on details of how the market ought to be designed, there was considerable support for several important conclusions: (1) California should try to set an example for states and the federal government; (2) a major and probably unsolvable problem is “leakage” (whereby emissions reductions by Californians simply lead to emissions increases in other states); (3) at least some permits should be allocated by auction to facilitate the creation of a market; and (4) offsets can play a useful role, but to do so must be regulated carefully to assure that emission reductions are real.