Publications

Abstract

Jurisdictions are in the process of establishing regulatory  systems to control  green-
house gas emissions. Short-term and  sometimes long-term emissions reduction goals are established,
as California does for 2020 and 2050,  but little attention has yet been focused on annual
emissions targets for the intervening years. We develop recommendations for  how   these  annual
targets—which we  collectively term  a “compliance pathway”—can be set, as well as what flexibility
sources should have to  adjust in  light  of  cost  uncertainties. Environmental  effectiveness,
efficiency, equity, adaptability, and  encouraging global participation are appropriate criteria by
which these  intertemporal policy  alternatives should be judged.  Limited but useful knowledge
about costs  leads us to recommend a compliance pathway char- acterized  by increasing incremental
reductions along it. This can be approximated by  discrete   linear   segments,  which  may   fit  
better   with  global   negotiations. Although the above conclusion applies to any long-term GHG
regulatory  program, many jurisdictions will rely heavily  on a cap-and-trade system, and the same 
path- way recommendation applies  to its time  schedule of allowances. Furthermore, borrowing
constraints in cap-and-trade systems can impose substantial unneces- sary costs.  To avoid  most of
these  costs,  we recommend that  sources be allowed early use  of limited percentages  of
allowances intended for future years.  We also find  that  a three-year  compliance period  can 
have  substantial benefit  over a one- year period.  © 2010 by the Association for Public Policy
Analysis and Management.