'Safety' First: RFF Researchers Featured in Article on Cap-and-Trade Safety Valve
On March 11th, ClimateWire published an article written by Darren Samuelsohn discussing congressional climate change legislation and the concept of the "safety valve." RFF researchers Joe Aldy, Billy Pizer, Ray Kopp, and Richard Morgenstern were prominently featured.
The ClimateWire piece covers the history of the safety valve through two presidents and its role in today's debate over a mandatory cap on greenhouse gas emissions. In 1974, an MIT economist named Martin Weitzman (now at Harvard) wrote a journal article titled, "Prices vs. Quantities," in which he found that when the costs of a policy are uncertain, and when incremental costs increase faster than incremental benefits, government is best positioned to regulate using prices.
The "safety valve" idea, which grew out of this principle, sets a price ceiling for carbon and fosters increasing certainty in a carbon cap-and-trade system.
In a 1997 paper, Pizer, Kopp, and Morgenstern argued that a safety valve provides a price guarantee in the tricky arena of regulating climate change. This work was supported in the academic literature through papers published by Pizer and RFF University Fellow Richard Newell in 2002 and 2003.
Serving on the Council of Economic Advisers, respectively, in the Clinton and Bush administrations, Aldy and Pizer were closely involved in internal debates over the potential of the safety valve to contain the costs of regulating greenhouse gases. ClimateWire quotes Rafe Pomerance, a State Department Official at the time, saying that Pizer "had a significant insider role" in the process.
While no such policy has yet become law, several proposals are being considered in Congress. Some, like the bill introduced by Sen. Jeff Bingaman in 2007, include a safety valve provision.
Supporters say that a safety valve gives industry, labor, and Congress a bottom line number they can point to as the worst-case scenario for cost. "If you think that cap-and-trade is the best way to go, then the safety valve is your insurance policy," said Aldy in the article.
Opponents believe that a safety valve undermines cap-and-trade and that this type of system is incompatible with other programs like the EU Trading Scheme. They also say that the U.S. trading programs for nitrogen and sulfur dioxides were successful despite such a provision.
Still others have proposed emissions credit banking and borrowing features for a Federal Reserve-like entity that would release credits as price rose.
The full article, titled "Behind 'safety valve' debate resides 30+ years of history," is available at ClimateWire. On March 19, RFF hosted an event discussing more recent proposals for cost management.