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Video Segments for Panel 2 The initial allocation: choices and implications | Allowance Allocation and Effects on the Electricity Sector | Design lessons from California and other regional programs | Project based offsets

Panel 2: Key policy design issues

The initial allocation: choices and implications

Don Fullerton, University of Illinois

Fullerton discusses the pros and cons of alternative uses for valuable carbon dioxide emissions permits. Whether those permits are handed out, or sold at auction, the value of those permits can to be given to existing polluters or allocated to research on renewable fuels, to spend on abatement technology, to retrain workers laid off by cutbacks in carbon-intensive industries, to reduce corporate or individual income taxes, to reduce the deficit, or to compensate low-income families who spend a higher than average fraction of their income on carbon- intensive products like electricity or heating fuel.

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Allowance Allocation and Effects on the Electricity Sector

Karen Palmer, Resource for the Future

Different methods of allocating CO2 emission allowances will have different effects on the price of electricity paid by consumers and the cost of a cap-and-trade program. The traditional approach of allocating emissions allowances to electricity generators will result in regional disparities in the electricity price effects of a climate policy, in part because of different regulatory frameworks across the states. Allocating allowances to regulated local distribution companies addresses this issue, but in a way that increases cost for the economy as a whole. Greater reliance on a cap-and-dividend approach, under which a portion of the value of emission allowances is distributed to households on a per capita basis, will achieve the goal of compensating consumers and do so at a lower cost.

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Design lessons from California and other regional programs

Barry Rabe, University of Michigan

The last decade has witnessed an unanticipated proliferation of state and regional policies that attempt to reduce greenhouse gas emissions. Twenty-three states, in collaboration with five Canadian provinces, have established three regional entities that establish common goals for emissions reduction via some version of emissions trading. Rabe’s discussion will examine early performance to date, placing particular emphasis on issues of sustaining cooperation across state, provincial, and government agency boundaries and lessons for possible development of a federal system.

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Project based offsets

Mark Trexler, Der Norske Veritas (USA)

Project based offsets have been a key part of climate change policy discussions for the last 20 years. Yet they have become a particularly contentious aspect of climate change policy discussions, and face an uncertain future. Should we care, and what role should offsets aspire to in future policy? Trexler’s presentation explores the key economic and implementation issues underlying the design and performance of carbon offset programs.

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Panel 2 Discussion

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