Cap-and-Trade Auction Design

Date

2015

Authors

Olson, Matthew

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Abstract

Cap-and-trade is the predominant regulatory framework for limiting limit greenhouse gas emissions. The US sulfur dioxide (SO2) market (under which compliance began in 1995 to combat acid rain) was the first modern cap-and-trade market, and in satisfying environmental objectives at acceptable cost, it became the basis of the greenhouse gas markets that began to emerge a decade later. The European Union now operates the Emissions Trading System (ETS), the world’s largest greenhouse gas allowance market. In North America, two regional markets now exist. The Regional Greenhouse Gas Initiative (RGGI) governs emissions in nine northeastern states. California and Quebec operate a joint market under the Western Climate Initiative (WCI). Worldwide, Kazakhstan, South Korea, New Zealand, and Switzerland each operate a market. Japan has two regional markets. China operates multiple experimental regional markets.

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Keywords

Operations research, Environmental economics, Auctions, Cap-and-trade, Economic system design

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