Placing U.S. Government Views on Climate Change into Historical Context

In this year of 2018, the Europe Union, China, India, Brazil, Korea, Canada, and other countries are negotiating the details for implementation of the Paris Agreement, and are developing domestic policies to achieve their respective Nationally Determined Contributions under the Agreement.  At the same time, the United States – under the leadership of President Donald Trump – has announced its intention to withdraw from the Paris Agreement as soon as permitted (November, 2020), and has taken significant steps to immediately roll back domestic climate change policies put in place by the Obama administration.  This may be a good time to place this quite deviant U.S. government behavior into historical context.

Where to Begin?

This blog is dedicated to an economic view of the environment, and my essays here typically feature analyses of existing or proposed policies, with a look to the future, particularly in the realm of global climate change.  Today, however, I take a look back, with an examination of the early history of deliberations in the U.S. government about climate change.

Of course, the history of climate change science goes back at least to Svante Arrhenius, the Nobel Prize-winning Swedish physicist and chemist, who in 1896 calculated how increased concentrations of atmospheric carbon dioxide (CO2) would increase the Earth’s temperature through the greenhouse effect, a finding that was picked up many years later by Guy Stewart Callendar, Charles David Keeling, Roger Revelle, and others.  But my focus is not on the history of the science, but on a very specific dimension of the policy history, namely the history of discussions within the U.S. government regarding climate change and potential policy responses.

Some might think that the starting point would be the 1988 Congressional hearings – led by U.S. Senators Timothy Wirth and Albert Gore – which the New York Times covered in a long article.  That was during the last year of the Reagan administration, but the story really begins more than two decades earlier – in 1965.

Before going further, I want to give credit to two people who have written about this – David Hone, Chief Climate Change Advisor for Shell, and Jairam Ramesh, formerly chief negotiator for India at the conferences of the United Nations Framework Convention on Climate Change (UNFCCC).

President Lyndon Johnson’s Science Advisory Committee, 1965

More than fifty years ago, on November 5, 1965, President Lyndon Johnson released a report authored by the Environmental Pollution Panel of the President’s Science Advisory Committee, pictured here.

 

Remarkably, the report included a 23-page discussion of the climatic effects of increased concentrations of atmospheric carbon dioxide (CO2), due to the combustion of fossil fuels, and – interestingly enough – concluded with a proposal for research on a specific approach to responding, namely with what is now called “geoengineering.”  Below is the table of contents of that section of the report – on “Atmospheric Carbon Dioxide,” and you can read that section of the report here.

In his introduction to the report, President Johnson emphasized that “we will need increased basic research in a variety of specific areas,” and then went on to state:  “We must give highest priority of all to increasing the numbers and quality of the scientists and engineers working on problems related to the control and management of pollution.”  What a contrast with the anti-science approach of the current resident of the White House!

A Striking Nixon White House Memorandum – 1969

Daniel Patrick Moynihan – surely one of the leading public intellectuals of the twentieth century – was a Harvard professor (1966-1969, 1971-1973 ), advisor to President Richard Nixon (1969-1970), U.S. Ambassador to India (1973-1975), U.S. Ambassador to the United Nations (1975-1976), and U.S. Senator (1977-2001).  On September 17th, 1969, while he was working in the White House, Moynihan sent a memorandum to John Ehrlichman, then a key Presidential assistant (who subsequently served 18 months in federal prison for his role in the Watergate conspiracy).  The original memorandum is in the Nixon Library, but you can also read it immediately below.  It is well worth reading!

Historical Context and the Path Ahead

From the perspective of 2018, as we enter the second year of the Trump administration, it may – or may not – be comforting to recognize that scientific and even policy attention by the White House to climate change goes back more than five decades, to the administration of Lyndon Johnson.  Since then, there have surely been ups and downs – through the administrations of Presidents Ford, Carter, Reagan, Bush (I), Clinton, Bush (II), and Obama, but the current administration is an outlier in its utter disdain for sound science and related hostility to sensible public policy (in this and other domains).

The list of Presidential administrations above should remind us that whether a single four-year term or the maximum eight years, administrations are relatively short-lived when judged in historical context.  And they tend to swing back and forth between the two political parties.

All of which reminds me of a true story.  In November, 2016, just days after the U.S. Presidential election, I was in Marrakech, Morocco, for the annual U.N. climate negotiations.  I was speaking on a panel assembled by the government of China in their Pavilion.  Those who preceded me voiced their dismay about the election and their very low expectations for the climate change policy that would likely be forthcoming from Donald Trump and his administration-to-be.

Our moderator from the Chinese government then introduced me to speak, and as I listened with headphones to the simultaneous translation, I heard him say, “And now Harvard’s Professor Stavins will bring us some good news from the United States.”  I was dumbfounded.  What could I possibly say?  I walked to the lectern, sipped some water, took a deep breath, and said to the audience, “When you get to be my age, you recognize that four years is not a long time!”

That will have to suffice as an “optimistic” conclusion to today’s essay.

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Linking Heterogeneous Climate Policies (and Activities at COP-23 in Bonn)

It’s well known that the Paris Agreement has achieved broad participation by countries accounting for some 97% of global GHG emissions (in contrast to the 14% of global emissions associated with countries taking on responsibilities under the current commitment period of the Kyoto Protocol).  That is a very important accomplishment, but as negotiations begin to elaborate key details of the Agreement (as they will in Bonn in November), a critical question is how to create incentives for countries to increase ambition over time. The ability to link different climate policies, such that emission reductions undertaken in one jurisdiction can be counted toward the mitigation commitments of another jurisdiction, may help Parties increase ambition over time.  A new paper from the Harvard Project on Climate Agreements by Michael Mehling of MIT, Gilbert Metcalf of Tufts University, and myself explores options and challenges for facilitating such linkages in light of the considerable heterogeneity that is likely to characterize regional, national, and sub-national efforts to address climate change.  The full paper is available for downloading, as is a two-page summary.

We will be presenting our results on November 13th and 14th in Bonn at the Twenty-Third Conference of the Parties (COP-23) of the United Nations Framework Convention on Climate Change.  At the end of this blog essay, I offer some details about these and other forthcoming activities of the Harvard Project on Climate Agreements at COP-23 in Bonn.

Background

Linkage is important, in part, because it can reduce the costs of achieving a given emissions-reduction objective. Lower costs, in turn, may make it politically feasible to embrace more ambitious objectives. In a world where the marginal cost of abatement – that is, the cost to reduce an additional ton of emissions – varies widely, linkage improves overall cost-effectiveness by allowing jurisdictions with relatively higher abatement costs to finance reductions from jurisdictions with relatively lower costs. In effect, linkage drives participating jurisdictions toward a common cost of carbon, equalizing the marginal cost of abatement and producing a more efficient distribution of abatement activities. These benefits are potentially significant: The World Bank has estimated that international linkage could reduce the cost of achieving the emissions reductions specified in the initial set of NDCs submitted under the Paris Agreement 32% by 2030 and 54% by 2050.

Article 6 of the Paris Agreement provides a foundation for linkage by recognizing that Parties to the Agreement may “choose to pursue voluntary cooperation in the implementation of their” NDCs through “the use of internationally transferred mitigation outcomes” (ITMOs). In contrast to the Kyoto Protocol (which likewise included provisions for international cooperation), the voluntary and flexible architecture of the Paris Agreement allows for wide variation, not only in the types of climate policies countries choose to implement, but in the form and stringency of the abatement targets they adopt.

Heterogeneous Linkage

Linkage is relatively straightforward when the policies involved are similar. However, linkage is possible even when this is not the case: for example, when one jurisdiction is using a cap-and-trade system to reduce emissions while another jurisdiction is relying on carbon taxes. There are several potential sources of heterogeneity: type of policy instrument used (for example, taxes vs. cap-and-trade vs. performance or technology standard); level of government jurisdiction involved (for example, regional, national, or sub-national); status under the Paris Agreement (that is, whether or not the jurisdiction is a Party to the Agreement – or within a Party); nature of the policy target (for examle, absolute mass-based emissions vs. emissions intensity vs. change relative to business-as-usual); and operational details of the country’s NDC, including type of mitigation target, choice of target and reference years, and sectors and greenhouse gases covered.

Analyzing Potential Linkages (Consistent with the Paris Agreement)

The full paper examines five specific cases of linkage, with various combinations of features, to identify which types of linkage are feasible, which are most promising, and what accounting mechanisms are needed to make their operation consistent with the Paris Agreement.  Each of the cases maps to a real-world example.

Most forms of heterogeneity – including with respect to policy instruments, jurisdictions, and targets – do not present insurmountable obstacles to linkage. However, some of these characteristics present challenges and call for specific accounting guidance if linkage is to include the use of ITMOs under the Paris Agreement. In particular, robust accounting methods will be needed to prevent double-counting of GHG reductions, to ensure that the timing (vintage) of claimed reductions and of respective ITMO transfers is correctly accounted for, and to ensure that participating countries make appropriate adjustments for emissions or reductions covered by their NDCs when using ITMOs. Additional issues under Article 6 include how to quantify ITMOs and how to account for heterogeneous base years, as well as different vintages of targets and outcomes.

Issues for the Climate Negotiators

Broader questions that bear on the opportunities for linkage under Article 6.2 include the nature of NDC targets and whether these are to be treated as strict numerical targets that need to be precisely achieved; the nature and scope of ITMOs, which have yet to be defined, let alone fully described, under the Paris Agreement; and finally, whether transfers to or from non-Parties to the Agreement (or sub-national jurisdictions within non-Parties) are possible, and if so, how they should be accounted for. Parties have differing views, however, on whether the guidance on Article 6.2 should extend to such issues.

Clear and consistent guidance for accounting of emissions transfers under Article 6 can contribute to greater certainty and predictability for Parties engaged in voluntary cooperation, thereby facilitating expanded use of linkage. At the same time, too much guidance, particularly if it includes restrictive quality or ambition requirements, might impede linkage and dampen incentives for cooperation. Given their limited mandate, Parties should exercise caution when developing guidance under Article 6.2 that goes beyond key accounting issues. This does not mean that concerns about ambition and environmental integrity should be neglected. However, if the combination of a set of common accounting rules and an absence of restrictive criteria and conditions can accelerate linkage and allow for broader and deeper policy cooperation, it can also increase the potential for Parties to scale up the ambition of their NDCs. And that may ultimately foster stronger engagement between Parties (and non-Parties), as well as with regional and sub-national jurisdictions.


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The Harvard Project on Climate Agreements at COP-23 in Bonn

We will conduct three panel events at the Twenty-Third Conference of the Parties (COP-23) of the United Nations Framework Convention on Climate Change (UNFCCC) in Bonn, Germany, during the week of November 13, 2017.  If you have credentials to access the secure area of the COP, you are most welcome to attend any or all of these.  Also, COP-23 attendees who wish to meet with the Harvard Project during the conference should email: Jason Chapman (Jason_Chapman@hks.harvard.edu).

Events in Brief:

Heterogeneous Linkage and the Evolution of Article 6
Monday, November 13
12:00 – 1:30 pm
Pavilion of the International Emissions Trading Association (IETA)

Implementing and Linking Carbon Pricing Instruments: Theory and Practice
Tuesday, November 14, 2017
11:30 am – 1:00 pm
Side Event Meeting Room 12

Carbon Pricing Policy Design
Tuesday, November 14, 2017
2:00 – 3:30 pm
Pavilion of the International Emissions Trading Association (IETA)

Events in Detail:

Heterogeneous Linkage and the Evolution of Article 6, Monday, November 13, 12:00 – 1:30 pm, Pavilion of the International Emissions Trading Association (IETA)

Participants:

Jos Delbeke, Director General for Climate Action, European Commission

Kelley Kizzier, Co-Chair, Article 6, Subsidiary Body for Scientific and Technological Advice

Michael Mehling, Deputy Director, Center for Energy and Environmental Policy Research
Massachusetts Institute of Technology

Gilbert Metcalf, Professor of Economics, Tufts University

Robert Stavins, A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School

Abstract:

The Paris Agreement has achieved one of two key necessary conditions for ultimate success — a broad base of participation among the countries of the world. But another key necessary condition has yet to be achieved — adequate collective ambition of the individual nationally determined contributions (NDCs). How can climate negotiators provide a structure that provides incentives to increase ambition over time? One part of the answer can be facilitating international linkage of regional, national, and sub-national policies. A central challenge is how to accomplish this in the context of the great heterogeneity that characterizes climate policies, along several dimensions, in the context of Paris-Agreement NDCs. Panelists will review the status of linkage in the world, the evolution of Article 6, and the relationship between the two.

Implementing and Linking Carbon Pricing Instruments: Theory and Practice, Tuesday, November 14, 2017, 11:30 am – 1:00 pm, Side Event Meeting Room 12, Co-Hosts: Harvard Project on Climate Agreements and Enel Foundation

Participants:

Andrei Marcu, Senior Fellow, International Centre for Trade and Sustainable Development

Michael Mehling, Deputy Director, Center for Energy and Environmental Policy Research, Massachusetts Institute of Technology

Gilbert Metcalf, Professor of Economics, Tufts University

Simone Mori, Head of European Affairs, Enel

Robert Stavins, A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School

Other participant(s) to be determined

Abstract:

The Paris Agreement has achieved one of two key necessary conditions for ultimate success — a broad base of participation among the countries of the world. But another key necessary condition has yet to be achieved — adequate collective ambition of the individual nationally determined contributions. This panel will consider how this issue might be addressed by international linkage of regional, national, and sub-national policies — that is, formal recognition of emission reductions undertaken in another jurisdiction for the purpose of meeting a Party’s own mitigation objectives. A central challenge is how to facilitate such linkage in the context of the very great heterogeneity that characterizes Nationally Determined Contributions along several dimensions. We consider such heterogeneity among policies, and identify which linkages of various combinations of characteristics are feasible; of these, which are most promising; and what accounting mechanisms would make the operation of respective linkages consistent with the Paris Agreement. The panel will draw in part on a paper by Michael Mehling, Gilbert Metcalf, and Robert Stavins, “Linking Heterogeneous Climate Policies (Consistent with the Paris Agreement),” available here

Carbon Pricing Policy Design, Tuesday, November 14, 2017, 2:00 – 3:30 pm, Pavilion of the International Emissions Trading Association (IETA), Co-Hosts:  Harvard Project on Climate Agreements and Enel Foundation

Participants:

Daniele Agostini, Head of Low Carbon Policies and Carbon Regulation, Enel

Joseph Aldy [via videoconference], Associate Professor of Public Policy, Harvard Kennedy School

Gilbert Metcalf, Professor of Economics, Tufts University

Robert Stavins, A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School

Other participant(s) to be determined

Abstract:

This panel will review experiences with cap-and-trade and carbon-tax policies, and draw lessons from those experiences. Panelists will also examine the choice between — and design of — such policies, through a political-economy lens, in order to highlight important public policy principles and policy options in carbon-pricing-policy design. The panel will draw in part on a paper by Joseph Aldy, “The Political Economy of Carbon Pricing Policy Design,” available here.

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Learning from Thirty Years of Experience with Cap-and-Trade Systems

“Those who do not remember the past are condemned to repeat it.”

The implication of this famous line (often misquoted as “those who do not learn history are doomed to repeat it”) from philosopher George Santayana’s 1905 book, The Life of Reason, Volume I – Reason in Common Sense, is that we are wise to learn from our mistakes.  This is undoubtedly true, as is the parallel recommendation that we are wise to learn from our successes.

Background

China is expected to launch later this year the world’s largest (CO2) emissions trading system; the European Union is in the process of extending and strengthening its CO2 cap-and-trade system; California has just extended and strengthened its CO2 cap-and-trade system; and earlier this week, nine New England and Middle Atlantic U.S. states announced their plan to extend and strengthen the Regional Greenhouse Gas Initiative.  With such developments in place and on the horizon, this is an important time to think carefully and critically about the history of cap-and-trade, and identify lessons that can be learned from three decades of prior experiences – both successes and failures.

That is precisely what Richard Schmalensee (Howard W. Johnson Professor of Economics and Management, Emeritus, at the Massachusetts Institute of Technology, and Dean Emeritus of the MIT Sloan School of Management) and I sought to do in an article which recently appeared in the Review of Environmental Economics and Policy (REEP) (“Lessons Learned from Three Decades of Experience with Cap and Trade,” Review of Environmental Economics and Policy, volume 11, issue 1, Winter 2017, pp. 59-79).  I encourage you to read the full article, which – in keeping with the style of the Review of Environmental Economics and Policy – is brief and broadly accessible.

In the hope that you may be stimulated to read the full article, in today’s blog essay I draw on the article to provide the historical context of our analysis, and to review some of our conclusions (for the actual analysis of individual cap-and-trade systems, and the justifications for our conclusions, you will need to see the article).

The Historical Context

Thirty years ago, many environmental advocates argued that government allocation of rights to emit pollution legitimized environmental degradation, while others questioned the feasibility of such an approach.  At the time, virtually all pollution regulations took a command-and-control approach, specifying the type of pollution-control equipment to be used or setting uniform limits on emission levels or rates.

Today, it is widely recognized – at least among students of economics – that because emission reduction costs can vary greatly, the aggregate abatement costs under command-and-control approaches can be much higher than under market-based approaches, which establish a price on emissions – either directly through taxes or indirectly through a market for tradable emissions rights established under a cap-and-trade policy.  Because market-based approaches tend to equate marginal abatement costs rather than emissions levels or rates across sources, they can achieve aggregate pollution-control targets at minimum cost.

In the REEP article, Dick Schmalensee and I examined the design and performance of seven of the most prominent emissions trading systems that have been implemented over the past 30 years in order to identify key lessons for future applications.  We focused on systems that have been important environmentally and/or economically, and whose performance has been well documented.  We excluded emission-reduction-credit (offset) systems, which offer credits for emissions reductions from some counterfactual baseline, because while emissions can generally be measured directly, emissions reductions are unobservable and often ill-defined.

The seven emissions trading systems we examined were:

  • the U.S. Environmental Protection Agency’s (EPA’s) phasedown of leaded gasoline in the 1980s;
  • the U.S. sulfur dioxide (SO2) allowance trading program under the Clean Air Act Amendments of 1990;
  • the Regional Clean Air Incentives Market (RECLAIM) in southern California;
  • the trading of nitrogen oxides (NOX) in the eastern United States;
  • the Regional Greenhouse Gas Initiative (RGGI) in the northeastern United States;
  • California’s cap-and-trade system under Assembly Bill 32; and
  • the European Union (EU) Emissions Trading System (ETS).

All of these programs except the first are textbook cap-and-trade systems.

In the article, we reviewed the design, performance, and lessons learned from each of the seven systems (and briefly discussed several other cap-and-trade systems).  In this blog essay, however, I turn immediately to our summary of key lessons.

Lessons from Thirty Years of Experience

Overall, we found that cap-and-trade systems, if well designed and appropriately implemented, can achieve their core objective of meeting targeted emissions reductions cost-effectively.  This is not something that was taken for granted in the past, and is still not accepted in some quarters.  That said, the devil is in the details, and design as well as the economic environment in which systems are implemented are very important.  Moreover, as with any policy instrument, there is no guarantee of success.  Based on the numerous specific lessons we identified in our analysis, several design and implementation features of cap-and-trade programs appear critical to their performance.

Key Features for System Design and Implementation

First, it is important not to require prior approval of trades.  In contrast to early U.S. experience with emissions offset systems, transactions costs can be low enough to permit considerable efficiency-enhancing trade if prior approval of trades is not required.

Second, it is clear from both theory and experience that a robust market requires a cap that is significantly below BAU emissions.

Third, to avoid unnecessary price volatility, it is important for final rules (including those for allowance allocation) to be established and accurate data supplied well before commencement of a system’s first compliance period.

Fourth, high levels of compliance in a downstream system can be achieved by ensuring there is accurate emissions monitoring combined with significant penalties for non-compliance.

Fifth, provisions for allowance banking have proven to very important for achieving maximum gains from trade, and the absence of banking provisions can lead to price spikes and collapses.

Sixth, price collars are important.  A changing economy can reduce emissions below a cap, rendering it non-binding, or a growing economy can increase emissions and drive allowance prices to excessive levels.  Price collars reduce price volatility by combining an auction price floor with an allowance reserve.  The resulting hybrid systems will generally have lower costs (as more stable prices facilitate investment planning) at the expense of less certain emissions reductions.

Finally, economy-wide systems are feasible, although downstream, sectoral programs have been more commonly employed.

Political Considerations that Affect Cap-and-Trade Design

Experiences with cap-and-trade also indicate the importance of political considerations for the design of cap-and-trade programs.

First, because of the potentially large distributional impacts involved, the allocation of allowances has inevitably been a major political issue.  Free allowance allocation has proven to help build political support. Under many circumstances, the equilibrium allowance distribution, and hence the aggregate abatement costs of a cap-and-trade system, are independent of the initial allowance allocation (Montgomery 1972; Hahn and Stavins 2012).  This means that the allowance allocation decision can be used to build political support and address equity issues without concern about impacts on overall cost-effectiveness.

Of course, free allowance allocation eliminates the opportunity to cut overall social costs by auctioning allowances and using the proceeds to cut distortionary taxes.  On the other hand, experience has shown that political pressures exist to use auction revenue not to cut such taxes, but to fund new or existing environmental programs.  Indeed, cap-and-trade allowance auctions can and have generated very significant revenue for governments.

Second, the possibility of emissions leakage and adverse competitiveness impacts has been a prominent political concern in the design of cap-and-trade systems.  Virtually any meaningful environmental policy will increase production costs and thus could raise these concerns, but this issue has been more prominent in the case of cap-and-trade instruments.  In practice, leakage from cap-and-trade systems can range from non-existent to potentially quite serious.  It is most likely to be significant for programs of limited geographic scope, particularly in the power sector because of interconnected electricity markets.  Attempts to reduce leakage and competitiveness threats through free allocation of allowances do not per se address the problem, but an output-based updating allocation can do so.

Third, although carbon pricing (through cap-and-trade or taxes) may be necessary to address climate change, it is surely not sufficient.  In some cases, abatement costs can be reduced through the use of complementary policies that address other market failures, but the types of “complementary policies” that have emerged from political processes have instead addressed emissions under the cap, thereby relocating rather than reducing emissions, driving up abatement costs, and suppressing allowance prices.

Identifying New Applications

Cap-and-trade systems are now being seriously considered for a wide range of environmental problems.  Past experience can offer some guidance as to when this approach is most likely to be successful.

First, the greater the differences in the cost of abating pollution across sources, the greater the likely cost savings from a market-based system – whether cap-and-trade or tax — relative to conventional regulation (Newell and Stavins 2003).  For example, it was clear early on that SO2 abatement cost heterogeneity was great, because of differences in ages of plants and their proximity to sources of low-sulfur coal (Carlson et al. 2000).

Second, the greater the degree of mixing of pollutants in the receiving airshed (or watershed), the more attractive a market-based system, because when there is a high degree of mixing, local hot spots are not a concern, and the focus can thus be on cost-effective achievement of aggregate emissions reductions.  Most cap-and-trade systems have been based on either the reality or the assumption of uniform mixing of pollutants. However, even without uniform mixing, well-designed cap-and-trade systems can be effective, as illustrated by the two-zone trading system under RECLAIM, at the cost of greater complexity.

Third and finally, since Weitzman’s (1974) seminal analysis of the effects of cost uncertainty on the relative efficiency of price versus quantity instruments, it has been well known that in the presence of cost uncertainty, the relative efficiency of these two types of instruments depends on the pattern of costs and benefits.  Subsequent literature has identified additional relevant considerations (Stavins 1996; Newell and Pizer 2003).  Perhaps more importantly, theory (Roberts and Spence 1976) and experience have shown that there are efficiency advantages of hybrid systems that combine price and quantity instruments in the presence of uncertainty.

Implications for Climate Change Policy

Two highly relevant lessons from thirty years of experience with cap-and-trade systems stand out.  First, cap-and-trade has proven itself to be environmentally effective and economically cost-effective relative to traditional command and control approaches. Moreover, less flexible systems would not have led to the technological change that appears to have been induced by market-based instruments (Schmalensee and Stavins 2013) or the induced process innovations that have resulted (Doucet and Strauss 1994).

Second, and equally important, the performance of cap-and-trade systems depends on how well they are designed.  In particular, it is important to reduce unnecessary price volatility, and hybrid designs can offer an attractive option if some variability of emissions can be tolerated, since substantial price volatility generally raises costs.

All of this suggests that cap-and-trade merits serious consideration when regions, nations, or sub-national jurisdictions are developing policies to reduce greenhouse gas (GHG) emissions.  And, indeed, this has happened.  However, because any meaningful climate policy will have significant impacts on economic activity in many sectors and regions, proposals for such policies have often triggered significant opposition.

In the United States, the failure of cap-and-trade climate policy in the Congress in 2010 was essentially collateral damage from a much larger political war that decimated the ranks of both moderate Republicans and moderate Democrats.  Nevertheless, political support for using cap-and-trade systems to reduce GHG emissions has emerged in many other parts of the world.  In fact, in the negotiations leading up to the Paris climate conference in 2015, many parties endorsed key roles for carbon markets, and broad agreement emerged concerning the value of linking those markets (codified in Article 6 of the Paris Agreement).

It is certainly possible that three decades of high receptivity to cap-and-trade in the United States, Europe, and other parts of the world will turn out to have been only a relatively brief departure from a long-term trend of reliance on command and control environmental regulation.  However, in light of the generally positive experience with cap-and-trade, there is reason for optimism that the tarnishing of cap-and-trade in US political debates will itself turn out to be a temporary departure from a long-term trend of increasing reliance on market-based environmental policy instruments.  Only time will tell.

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