Market Mechanisms: Understanding the Options
Climate change poses a significant risk for a
broad range of human and natural systems. Policies to reduce emissions
are critical if we are to avoid the most costly damages associated with a
rapidly changing climate. Compared to traditional command-and-control
regulations, market-based policies can more cost-effectively reduce
greenhouse gas (GHG) emissions by creating financial incentives for GHG
emitters to emit less. Ten U.S. states and many jurisdictions outside
the United States have established market-based programs to reduce GHGs.
Market-based policies would be among the options available to states to
reduce GHGs from power plants under the U.S. Environmental Protection
Agency’s proposed Clean Power Plan. This brief describes the theory
behind market-based approaches; their success in cost-effectively
reducing GHGs and other emissions; and a range of market-based options,
including: a carbon tax, a cap-and-trade program, a baseline and credit
program, a clean or renewable electricity standard, and an energy
efficiency resource standard.
broad range of human and natural systems. Policies to reduce emissions
are critical if we are to avoid the most costly damages associated with a
rapidly changing climate. Compared to traditional command-and-control
regulations, market-based policies can more cost-effectively reduce
greenhouse gas (GHG) emissions by creating financial incentives for GHG
emitters to emit less. Ten U.S. states and many jurisdictions outside
the United States have established market-based programs to reduce GHGs.
Market-based policies would be among the options available to states to
reduce GHGs from power plants under the U.S. Environmental Protection
Agency’s proposed Clean Power Plan. This brief describes the theory
behind market-based approaches; their success in cost-effectively
reducing GHGs and other emissions; and a range of market-based options,
including: a carbon tax, a cap-and-trade program, a baseline and credit
program, a clean or renewable electricity standard, and an energy
efficiency resource standard.
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