Question

Read the essay by Richard Schmalensee and Robert N. Stavins “Lessons Learned from Three Decades of Experience with Cap-and-Trade” and answer the following questions. http://www.rff.org/files/document/file/RFF-DP-15-51.pdf

1. A distinctive feature of the Sulfur Allowance Trading program was the difference in time from the final rules (of the cap and trade program) and program start. Final rules and features of the program were completed and made known to firms two years ahead of the first compliance year. Clearly explain how you think this strategy affected the compliance and performance of the program.

2. A regulatory authority is considering implementing a cap and trade program for sulfur emissions within an industry but lacks historical data on emission levels for the firms which are going to be under the program. What challenges do you think would be encountered under such a cap and trade program? What options would you propose to overcome these challenges?

3.In what way can a cap and trade program meet a government’s revenue goals without impacting environmental goals set forth in the program. Clearly explain.

Answer 1

This is my answer

1.

Provide the information prior to the start of the program, grants some degree of certainty to companies, facilitate their planning, and limit price volatility in short run. In other words, having previous information allows companies to plan their strategies and thus have a better performance when the new program starts. Therefore, I consider that this measure increases the chances of success of the program. In the case of SO2 program, the results were even higher than expected.

2.

First of all, it is impossible to implement a public policy without having full knowledge of the characteristics of the market. Similarly, without fully knowing the level of emissions created by the industry in question, it is not possible to establish concrete and achievable goals for the reduction of emissions. Finally, it makes it impossible to establish an optimal price for allowances.
Therefore, it is necessary for the regulatory authority to invest in the correct monitoring and collection of emissions data. This will allow a greater knowledge of the market and, therefore, a more efficient public policy.

Only 1 and 2 answer

Sorry for 3 answer