Conquering Costs and Climate Policy

A central policy question in the climate debate is are how to minimize cost to the economy while ensuring the environmental outcomes scientists say are necessary to limit the worst effects of climate change. The Nicholas Institute for Environmental Policy Solutions explored policy approaches to controlling the costs attendant with U.S. climate policy. Costs are broadly defined to include reductions in GDP; loss of competitive advantage, jobs or output to trading partners without comparable climate regimes; and costs that arise from the unequal distribution of costs on various regions and segments of society. Policy approaches examined include the use of offsets, strategic allowance reserves, and other tools for limiting the price of allowances; competitiveness provisions for trade-sensitive U.S. industrial sectors; and allowance allocation and transfers to address impacts on lower-income brackets of the U.S. population. Although the U.S. Congress did not immediately pursue the cap-and-trade approach to climate policy to which these cost containment mechanisms apply, the Nicholas Institute was called upon to help state and regional entities in the U.S. The Nicholas Institute has assisted in deploying these mechanisms in emerging programs including California's cap-and-trade program and the northeastern states Regional Greenhouse Gas Initiative.