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Emissions Trading in the U.S.: Experience, Lessons and Considerations for Greenhouse Gases

A. Denny Ellerman, Paul Joskow, and David Harrison, Jr.

Pew Center for Climate Change (2003).

A. Denny Ellerman, Paul Joskow, and David Harrison, Jr., Pew Center for Climate Change (2003).

This report examines U.S. experience with emissions trading to provide lessons for future applications, including efforts to address climate change. It reviews six diverse U.S. emissions trading programs, drawing general lessons for future applications and discussing considerations for controlling greenhouse gas emissions. The authors derive five key lessons from this experience. First, emissions trading has been successful in its major objective of lowering the cost of meeting emission reduction goals. Second, the use of emissions trading has enhanced—not compromised—the achievement of environmental goals. Third, emissions trading has worked best when the allowances or credits being traded are clearly defined and tradable without case-by-case certification. Fourth, banking has played an important role in improving the economic and environmental performance of emissions trading programs. Finally, while the initial allocation of allowances in cap-and-trade programs is important from a distributional perspective, the method of allocation generally does not impair the program’s potential cost savings or environmental performance.

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