The Rationale for “Cap-and-Invest”
David Farnsworth met at US Environmental Protection Agency with representatives of Chinese cap-and-trade pilot programs to discuss the Regional Greenhouse Gas Initiative (RGGI) model of “cap-and-invest.” Drawing from his experience with RGGI, he described the evolving nature of the cap-and-trade mechanism and the need to view it in a larger context, including the rationale for auctioning allowances and recycling revenues. By coordinating cap-and-trade policies with other strategies, such as energy efficiency, renewable energy, and demand response programs, an overall reduction of carbon emissions can be achieved at lower cost to consumers. RGGI chose, for example, to auction allowances, rather than give them away for free, enabling investment of the auction proceeds in energy efficiency and other consumer programs. As a result, the ongoing quarterly auctions have raised more than a billion dollars for states to invest in clean energy and other programs since September 2009. The Chinese delegation included representatives from Guangdong and Shanghai’s Development Research Centers, the China National Development and Reform Commission’s Climate Strategy Center, and the Shanghai Exchange.