New Working Paper Proposes Cap-and-Trade System to Address Global Climate Change

November 1, 2007

A new proposal to address the challenges posed by global climate change has been put forth by Kennedy School Professor Robert Stavins. In a new Working Paper, Stavins argues on behalf of a market-based cap-and-trade system designed to both begin to reduce CO2 emissions over the short run and incentivize emitters to invest in new cleaner technologies over the long run.

"A well-designed cap-and-trade system thus minimizes the costs of achieving any given emissions target," Stavins writes. "Overall, a cap-and-trade system provides certainty regarding emissions from the regulated sources as a group, because aggregate emissions from all regulated entities cannot exceed the total number of allowances."

The U.S. cannot ignore the problem of global climate change, Stavins argues, with public sentiment increasingly in favor of responsible government action. He also recognizes that no program that addresses the issue seriously will come without significant costs, although the costs can be minimized if the policy is designed properly.

"A cap-and-trade system that establishes caps extending decades into the future generates price signals that provide incentives for firms to invest in the development and deployment of such technologies, thereby lowering the future cost of reducing emissions," Stavins writes.

Stavins is professor of business and government at the Kennedy School, and serves as director of the Harvard Environmental Economics Program. His research has examined diverse areas of environmental economics and policy and has appeared in a variety of economics, law, and policy journals, as well as several books.

Read the Working Paper, titled "A U.S. Cap-and-Trade System to Address Global Climate Change," on the Kennedy School website: http://ksgnotes1.harvard.edu/Research/wpaper.nsf/rwp/RWP07-052


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