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Comments on California’s Cap-and-Trade program

This summer, California passed Assembly Bill 398, extending the state’s well-regarded cap-and-trade program until 2030. The California Air Resources Board held a public workshop on October 12, 2017, on implementing the provisions of AB 398. The Board requested feedback on a number of specific issues to aid it in finalizing the cap-and-trade regulations, including on setting a price ceiling for emissions allowances and unsold allowance allocation. In our comments to the Board, we focused on these two issues, making recommendations for developing regulations under AB 398 that help ARB fulfill its statutory mandates to take into account the externalities associated with greenhouse gas emissions and promote overall societal well-being. Specifically, we recommended that ARB should set the price ceiling for permits at least as high as the social cost of carbon (SCC) because setting a price ceiling below this threshold would fail to provide emitters with incentives that fully account for the value of avoided carbon dioxide releases. For similar reasons, we also suggested ARB preferentially allocate unsold allowances to the price containment reserve with the highest price.