Abstract: This is the first academic paper that reviews the economic, policy, and technology history of shale gas development in the United States. The primary objective of the paper is to answer the question of what led to the shale gas boom in the United States to help inform stakeholders in those countries that are attempting to develop their own shale gas resources. This paper is also a case study of the incentive, process, and impact of technology innovations and the role of government in promoting technology innovations in the energy industry. Our review finds that government policy, private entrepreneurship, technology innovations, private land and mineral rights ownership, high natural gas prices in the 2000s, and a number of other factors all made important contributions to the shale gas boom.

Abstract: A carbon tax will interact with other policies that are intended to reduce carbon dioxide emissions and encourage clean sources of energy and energy efficiency. This paper examines these policy interactions. A well-designed carbon tax can be an efficient instrument for reducing emissions, yet whether it will be implemented in an efficient manner is uncertain. A legislatively determined tax may not fully reflect up-to-date scientific and economic information. Behavioral and institutional factors suggest that a tax may not have its fully intended effect. These considerations suggest that climate policy should and will continue to be a complex mix of regulaions at various levels of government, even with a carbon price. Nonetheless, the possibility of unintended interactions among policies remains. The role for policies to encourage renewables and energy efficiency depends on the stringency of the carbon tax and presence of externalities related to technological learning and the energy efficiency gap.

Abstract: National and subnational economies have started implementing carbon pricing systems unilaterally, from the bottom up. Therefore, the potential linking of individual cap-and-trade programs to capture efficiency gains and other benefits is of keen interest. This paper introduces a two-tiered framework to guide policymakers, with an interest in North American policy outcomes. One tier discusses program elements that need to be aligned before trading of allowances across programs can occur. The second identifies benefits of incremental alignment of program elements even prior to trading between programs—which we call “linking by degrees.” We apply this framework to California’s cap-and-trade program and the Regional Greenhouse Gas Initiative. These programs are already linking through cooperation and sharing of information. Many aspects of the program designs are ready for the exchange of allowances within a common market; however, the difference in allowance prices remains an issue to be considered before formal linking could occur.

Abstract: Carbon markets are substantial and they are expanding. There are many lessons from experiences over the past eight years: fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This sits in sharp contrast to the integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another, and policymakers overseeing carbon markets must confront how to measure the comparability of efforts among markets and relative to a variety of other policy approaches.

Abstract: In 2009, President Obama pledged that, by 2020, the United States would achieve reductions in greenhouse gas emissions of 17 percent from 2005 levels. With the failure of Congress to adopt comprehensive climate legislation in 2010, the feasibility of the pledge was put in doubt. However, we find the United States is near to reaching this goal; currently, the country is on course to achieve reductions of 16.3 percent from 2005 levels in 2020. Three factors contribute to this outcome: greenhouse gas regulations under the Clean Air Act, secular trends including changes in relative fuel prices and energy efficiency, and subnational efforts. Nonetheless, global emissions likely will be greater than if comprehensive climate legislation had passed because of the absence of offsets, and at this point the United States is expected to fail to meet its financing commitments under the Copenhagen Accord for 2020.

Abstract: Previous analyses assumed that firms must surrender permits as they pollute. If so, then the price of permits may remain constant over measurable intervals if the government injects additional permits at a ceiling price or may even collapse if more permits are injected through an auction. However, no cap-and-trade program actually requires continual compliance. The three federal bills and California's AB-32, for example, instead require that firms surrender permits only periodically to cover their cumulative emissions since the last compliance period. Anticipated injections of additional permits during the compliance period should have different effects than under continual compliance. We develop a methodology for analyzing the effects of such permit injections. Using it, we explain why the sales provisions of one federal bill might generate a speculative attack in the permit market and why one provision of AB-32 may undermine the very existence of an equilibrium.

Abstract: California will enact an economy wide cap-and-trade program on CO2. Estimates of the value of tradable emissions allowances in the first year range from roughly $2.6 to $7.8 billion, when electricity and industry are covered under the program. Those sectors receive most of their allowances for free; electricity sector allowance value is directed to the benefit of ratepayers. In the first year a fraction of allowances, mostly with future year vintage, will be sold through an auction with a value of roughly $0.6 to $1.8 billion. That revenue will be returned to the California economy through appropriation by the legislature. Allowance auction revenue will grow five-fold in 2015 when transportation and natural gas are included. To whom does this revenue belong? This is the key unresolved issue in the design of the California program.

Abstract: Energy efficiency resource standards (EERS) refer to policies that require utilities and other covered entities to achieve quantitative goals for reducing energy use by a certain year. EERS policies generally apply to electricity and natural gas sales and electricity peak demand, though they also cover other energy sources in Europe. Our study aggregates information about the requirements of existing EERS policies for electricity sales in the United States. We convert quantitative goals into comparable terms to compare the nominal stringency of EERS programs across states. EERS programs also differ in their nonquantitative requirements, including flexibility measures, measurement and verification programs, and penalties and positive incentives. We compare the U.S. policies to similar policies in the European Union and discuss important policy issues, including exogenous changes in fuel prices and issues with utility management of energy efficiency programs.

Abstract: Twenty states in the United States have adopted energy efficiency resource standards (EERS) that specify absolute or per¬centage reductions in energy use relative to business as usual. We examine how an EERS compares to policies oriented to meeting objectives, such as reducing greenhouse gas emissions, cor¬recting for consumer error in energy efficiency investment, or reducing peak de¬mand absent real-time prices. If reducing energy use is a policy goal, one could use energy taxes or cap-and-trade systems rather than an EERS. An EERS can be optimal under special conditions, but to achieve optimal goals following energy efficiency investments, the marginal external harm must fall with greater energy use. This could happen if inframarginal energy has greater negative externalities, particularly regarding emissions, than energy employed at the margin.

Abstract: EPA is in the process of regulating U.S. greenhouse gas (GHG) emissions using its powers under the Clean Air Act. The likely next phase of this regulatory program is performance standards under Section 111 of the act for coal plants and petroleum refineries, which the agency has committed to finalize by the end of 2012. Section 111 appears to allow use of flexible, market-based regulatory tools. In this paper, we discuss one such tool, tradable standards. Tradable standards appear to be a legally and politically viable choice for the agency, and evidence suggests they are substantially more cost-effective than traditional performance standards. The paper discusses implementation issues with tradable standards, including categorization, banking, and phased implementation, as well as broader issues with the Section 111 rulemaking process as it relates to state-level GHG regulatory efforts.

Abstract: Climate change policy analysis has focused almost exclusively on national policy and even on harmonizing climate policies across countries, implicitly assuming that harmonization of climate policies at the subnational level would be mandated or guaranteed. We argue that the design and implementation of climate policy in a federal union will diverge in important ways from policy design in a unitary government. National climate policies built on the assumption of a unitary model of governance are unlikely to achieve the expected outcome because of interactions with policy choices made at the subnational level. In a federal system, the information and incentives generated by a national policy must pass through various levels of subnational fiscal and regulatory policy. Effective policy design must recognize both the constraints and the opportunities presented by a federal structure of government. Furthermore, policies that take advantage of the federal structure of government can improve climate governance outcomes.

Abstract: The U.S. Environmental Protection Agency (EPA) continues to move ahead with regulation of greenhouse gas emissions under the Clean Air Act (CAA). Previous work has indicated that basic forms of compliance flexibility—trading—appear to be legally permissible under the relevant part (Section 111) of the CAA. This paper takes a close look at more expansive and ambitious types of flexibility: trading between different kinds of sources, biomass co-firing, and, above all, offsets. It concludes that most types of such extended flexibility are either legally incompatible with the CAA, or so legally problematic that EPA is unlikely to adopt them. This has important implications for both the costs of CAA climate policy and the level of environmental benefits that are achievable. It also creates tension between CAA climate policy and state-level policies, such as California’s, that aim to include various forms of extended flexibility.

Abstract: A deposit-refund system combines a tax on product consumption with a rebate when the product or its packaging is returned for recycling. Deposit-refunds are used for beverage containers, lead-acid batteries, motor oil, tires, various hazardous materials, electronics, and more. In addition, researchers have shown that the approach can be used to address many other environmental problems beyond waste disposal. By imposing an up-front fee on consumption and subsidizing "green" inputs and mitigation activities, a deposit-refund may be able to efficiently control pollution in much the same way as a Pigovian tax. Theoretical models have shown that alternative waste disposal policies, such as virgin materials taxes, advance disposal fees, recycled content standards, and recycling subsidies are inferior to a deposit-refund. These results have been corroborated in calibrated models of U.S. waste and recycling. And in theoretical models that consider joint environmental problems and product design considerations, the deposit-refund continues to have much to recommend it as a component of an overall socially optimalset of policies. More empirical research into deposit-refund systems is needed, particularly the upstream systems used for many products. In these systems, the processors or collectors of recyclables—rather than consumers—receive the refund. Upstream systems may have lower transaction costs and better environmental outcomes than traditional downstream systems.

Abstract: EPA will soon propose performance standards under Section 111 of the Clean Air Act for greenhouse gas pollution from the two largest emitting stationary source sectors—fossil-fueled power plants and petroleum refineries. The form these standards will take remains unclear. A key issue that will shape the effectiveness of the regulations is the degree to which they enable regulated entities to use flexible approaches to achieve the standards. This discussion paper provides the content of a letter to EPA Administrator Jackson that describes areas of general academic agreement on the EPA's authority to use compliance flexibility options under Section 111 of the Clean Air Act in the development of performance standards for greenhouse gas emissions.