Whitepaper
January 1, 2009
CO2 Price Volatility: Consequences and Cures
Published by The Brattle Group, Inc.
A number of current climate policy proposals in the U.S. involve a cap and trade mechanism with increasingly tight caps on carbon emissions over time. Most of the debate about how to pursue such a policy has focused on the level of the caps over time, how allowances will be auctioned or allocated, and what kinds of offsets should be allowed.
One aspect that is less often discussed but quite important to the success of climate policy is the potential for CO2 price volatility and how it could be managed. High volatility in CO2 prices could discourage and delay investment in the long-lived, capital-intensive CO2 abatement technologies needed to achieve large reductions in carbon emissions.
