CALIFORNIA TRADABLE EMISSIONS POLICY AND GREENHOUSE GAS CONTROL

Public-policy analysts advocate a tradable emission permits scheme to regulate and reduce greenhouse gas emissions. Their argument is based primarily on the theoretical advantages of a market-based scheme compared to a conventional command-and-control scheme: greater efficiency and increased incentives to develop new control technologies. Experience with an existing tradable market scheme for conventional industrial air pollutants, however, illustrates thc practical difficulties that can arise. In addition to potentially formidable obstacles posed by the need for effective monitoring and enforcement, other problems are institutional: the legislature may be slow to give clear authority for market-based regulations, and regulators used to more conventional regulatory schemes may be hostile to the market. As a result, the market-based program may be burdened with severe regulatory restrictions. Industrial firms, which often distrust regulators' intentions and the ability of the market to produce emission credits in the future, withhold credits from the market. A half-hearted approach to market-based regulation virtually guarantees market failure.