U.S. Carbon Market Design: Regulating Emission Allowances as Financial Instruments

Financial markets typically evolve as they grow over time, and regulatory changes often follow the development of new financial products or respond to failures in the market system. The de novo creation of a U.S. carbon market to reduce the nation's greenhouse gas emissions presents lawmakers with the opportunity to design a transparent, efficient carbon market that builds on the best practices for market regulation and lessons learned from recent market failures.