Policy Suggestions for Emissions Trading in the U.S.A.

This honors thesis will examine current and theoretical cap and trade emissions trading schemes in an attempt to make recommendations on how to improve this regulated commodity market. The various control mechanisms available to regulators will be discussed: including allocation methodology, benchmarking, banking, variation in design frameworks, etc. To aid and support the proposed policy recommendations, this paper will investigate the design framework of the SOx emission trading scheme in the US, the Kyoto Protocol, and the European Union Emissions Trading Scheme (ETS). The political, social, and economic context of these schemes will be taken into account when considering the policy impact of each design framework. After this discussion is complete, this paper will propose recommendations on the design and implementation of a domestic \u27cap and trade\u27 scheme. Possible control mechanisms for a design framework will be recommended. In addition, a relatively new component of the cap and trade scheme will be introduced. This paper will propose the creation of a congressionally appointed committee to oversee the carbon allowance market in a theoretical U.S. emissions trading scheme. Its objective will be to: (1) prevent dramatic short-term flux in allowance values; (2) provide politically shielded oversight capabilities; (3) assess the impact of the domestic design framework; (4) update allowance when new information becomes available; (5) encourage \u27green\u27 technology implementation and R&D; and (6) raise public confidence in a cap and trade scheme