California’s climate policy crisis

by | Jul 7, 2016

In May, California’s quarterly cap-and-trade auction imploded, with 90% of available allowances failing to find a buyer. Had these allowances sold at the minimum auction price, they would have brought in more than $990 million in total revenue—$550 million of which was due to be delivered to the Greenhouse Gas Reduction Fund to support high-speed rail and other state projects. The state now faces an enormous shortfall of carbon revenue.

California’s cap-and-trade policy is widely seen as the leading example of state carbon pricing. So what happened?

As my co-author Andy Coghlan and I explain in a new article in The Electricity Journal, California’s market suffers from a structural oversupply of allowances and a lack of long-term policy credibility. These problems illuminate how emissions trading systems work in practice and should inform the next generation of climate policies.

Read the rest of the post on the Niskanen Center website.

photo credit: NASA