Allocating Allowances in a Greenhouse Gas Trading System
Staff Paper
LETTER FROM NCEP CO-CHAIRS
Dear Colleagues,
One of the most important recommendations in our 2004 report, ”Ending the Energ Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges,” was a proposal that the United States implement a mandator.
As policy-makers, business leaders, and environmental advocates turn from the question of whether we need to address climate change to how we should go about it, more attention is being focused on the nuts and bolts of designing an effective, market-based program for reducing greenhouse gas emissions. In that discussion, the question of allocation—that is, how government distributes emissions permits or allowances under a trading program— emerges as one of the most critical and contentious of many design issues.
Recognizing the importance of allocation, the Commission has engaged in extensive further analysis and discussion of this topic over the last year. The results of that exploration are refl ected in this staff White Paper, which aims to promote a better shared understanding of allocation: what it is, why it matters, and how policy-makers might go about designing an approach that is not only politically viable, but that fairly distributes the net burdens of regulation and seeks to maximize benefi ts to stakeholders and society as a whole. We are well aware that reaching a consensus on allocation will not be easy—the subject is inherently complex and many of the decisions involved are fundamentally distributional in nature, making them difficult to adjudicate in a manner that satisfi es all parties. Moreover, allocation debates are easily confounded by misperceptions, common among many stakeholders, about how allocation decisions do and do not affect the way an emissions trading program works in practice.
It is our hope that this White Paper will help to clear up some of those misperceptions and provide the foundation for a new way of thinking about allocation. And as always we look forward to working with you, the reader, as this important debate evolves in the months ahead.
Sincerely,
John P. Holdren
William K. Reilly
John W. Rowe
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