The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More

Policy Brief Series Examines Key Elements of Cap & Trade Design

Press Release
November 13, 2008

Pew Center Contact: Tom Steinfeldt, (703) 516-4146

Implications, Options and Complementary Policies Examined in Ten Briefs

Washington, DC – As President-elect Obama and a new Congress prepare to assume office in January, expectations for climate and energy legislation in the U.S. are arguably the highest in recent memory. And within the confines of the current economic climate, careful crafting of these policies has never been more important. 

To advance this effort and inform the climate change debate in Washington, the Pew Center is releasing a Congressional Policy Brief Series that will serve as a primer for the 111th Congress and the new Administration. The series addresses key cap-and-trade design elements and critical complementary policies that policymakers must grapple with to deliver cost-effective, environmentally-stringent plans to significantly reduce greenhouse gas (GHG) emissions and grow the economy.  

The new series is presented in two Congressional briefing books focused on key design questions regarding U.S. climate policy. The first book discusses the elements of a cap-and-trade system, including the main considerations for crafting the system and the implications of various design approaches. The briefs address the controversial issues in the climate change debate, such as the allocation of allowances, the use of cost containment mechanisms, and the role of domestic and international offsets. The second briefing book outlines key complementary policies, including those related to coal use, transportation, carbon taxes, and technology.

The materials do not recommend specific design choices or support any particular legislation. Instead, the books emphasize the implications of different policy approaches.

“Designing a U.S. domestic carbon market that is both environmentally effective and economically viable is an enormous undertaking, and as we know too well, the devil is in the details. We hope this series of briefs will serve as a credible and accessible resource for policy-makers as they grapple with a multitude of design decisions next year.” said Eileen Claussen, President of the Pew Center on Global Climate Change.

The work of the Pew Center was supported by a generous grant from the Doris Duke Charitable Foundation (DDCF). Through its Climate Change Initiative, DDCF supports work to evaluate and develop policies that put a price on greenhouse gas emissions and address other aspects of the regulatory frameworks needed to reduce the threat of global warming.

“The insight and analysis found in this series will help policymakers assess the different ways to address our climate and energy problems,” said Andrew Bowman, director of the Climate Change Initiative at the Doris Duke Charitable Foundation. “This work is critical, and the Doris Duke Charitable Foundation is pleased to support it.” 

For more information about global climate change and the activities of the Pew Center, visit www.c2es.org.


The Pew Center was established in May 1998 as a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

Congressional Policy Brief Series

Cap-and-Trade Design Elements for a Greenhouse Gas Reduction Program

Complementary Policies to Reduce Greenhouse Gas Emissions

Containing the Costs of Climate Policy

November 2008

This policy brief outlines various options for containing costs under a cap-and-trade program to reduce greenhouse gas (GHG) emissions. Although cap and trade is generally considered a more cost-effective approach than traditional regulation, excessive allowance prices are a concern, particularly in the early years of a program when some low carbon technologies are not likely to be commercially available. High allowance prices could mean high compliance costs for regulated firms and high energy prices for consumers. A number of the design elements of a cap-and-trade policy—including the stringency of the emission reduction targets and the distribution of allowance value—will influence the cost of the policy. However, uncertainty regarding allowances prices, and in particular short-term price volatility and persistently high prices, are of concern to stakeholders. Policy options to address these concerns include allowing facilities to bank allowances, permitting firms or the government to borrow allowances from future allocations, allowing (or expanding) the use of offsets, allowing the use of multi-year compliance periods, setting a ceiling on allowance prices, or even relaxing the cap or emission targets associated with the policy. Each of these options has strengths and weaknesses and their desired results must often be weighed against the reduced certainty of meeting the environmental objective. A number of these polices, such as banking, could be established as part of the overall policy from the beginning of the program. Others could be set to be triggered automatically if allowance prices reach a certain level or at the discretion of a market oversight entity. It is likely that any viable cap-and-trade proposal will include a variety of cost containment mechanisms.


Download the brief (PDF)





Addressing Competitiveness in U.S. Climate Change Policy

November 2008

This brief examines policy options for addressing competitiveness concerns arising from the establishment of a mandatory domestic program to limit greenhouse gas emissions. These concerns center on energy-intensive industries that compete globally and could face higher costs under a domestic climate program while key competitors do not. Studies find little evidence of significant competitiveness impacts on U.S. firms from past environmental regulation, and forecast relatively modest impacts on a narrow set of industries under a U.S. cap-and-trade program with modest emission allowance prices. In the long run, international agreements offer the best recourse against competitiveness concerns. As an interim measure, a domestic climate program could mitigate competitiveness impacts through options such as: excluding trade-exposed firms from regulation; compensating firms for regulatory costs through free allocation of emission allowances; compensating firms, while providing incentive for production and emission reduction, through output-based allocations; and placing taxes or other requirements on goods imported from countries with weaker emission controls. These approaches vary in their effectiveness in reducing competitiveness impacts, in their impact on the environmental integrity and economic efficiency of a domestic climate program, and in their influence on international relations and prospects for an effective international climate framework.


Download the brief (PDF)

Review of Proposed Options for Addressing Industrial Competitiveness Impacts (PDF)


Greenhouse Gas Emission Reduction Timetables

November 2008

This brief describes issues relevant to the timetable for reducing U.S. emissions of greenhouse gases (GHGs) under a cap-and-trade program. The first issue is whether reductions are sufficiently deep to have a meaningful effect on the global climate. Scientific evidence suggests that global reductions of 50 to 85% by 2050 are needed to avoid the most serious consequences of climate change, and policymakers need to decide what share of the global emission reduction burden will be shouldered by the United States. Second, while existing technologies can be used to make significant near-term emission reductions, new technologies will be needed to achieve deep long-term reductions. Policymakers can stimulate technology development with a sufficiently stringent timetable that covers several decades. Cost minimization is the third issue. Many existing technologies can be used to reduce emissions almost immediately at little cost. However, in some capital-intensive situations, such as a major change to a factory’s production process, costs may be reduced if emission reduction requirements can be matched with the natural lifecycle of the equipment or similarly, if firms and consumers have time to adjust purchasing patterns to reflect higher prices for GHG-intensive goods. Fourth, when it comes to the mechanics of setting a reduction timetable, policymakers must specify not only the start and end dates for the reduction pathway, but also the target for each intervening year. Given the environmental importance of cumulative emissions, less aggressive near-term action will necessitate deeper reductions in later years. Policies enacted by others suggest a blended strategy: near-term reduction targets based on technical feasibility and long-term targets based on environmental objectives. Finally, while a multi-decade emission reduction timetable will provide regulatory certainty, enhance innovation, and minimize cost, the reality is that new scientific, technical, or economic data may necessitate changes to the timetable. Policymakers need to manage the trade-off between long-term predictability and the flexibility to adapt to new information.


Download the brief (PDF)


Scope of a Greenhouse Gas Cap-and-Trade Program

November 2008

This brief describes issues involved in choosing the set of greenhouse gases (GHGs), emission sources, and sectors of the economy included in a cap-and-trade program. Trade-offs between three primary criteria determine whether a source should be included in a cap-and-trade program: broader coverage, measurability of emissions, and ease of administration. Policymakers also face choices in determining which entity in each sector must hold allowances at the conclusion of each compliance period (the point of regulation)—either upstream, where the carbon dioxide or GHGs first enter the economy, or downstream at the location where GHGs are emitted, or somewhere in between. The choice of upstream or downstream depends partly on measurability and concerns about administration, and could have important impacts on the economic incentives for emission reductions. Additional choices include whether to regulate small sources, to expand program scope over time by “phasing in” additional sectors or GHGs, and whether to pursue complementary policies that can provide additional emission reduction opportunities. Special considerations are also important in defining the scope for each sector of the economy. The power sector requires special treatment to ensure proper incentives for carbon capture and storage and to avoid double-counting emissions from natural gas use. The transportation sector may be difficult to regulate downstream, but fuels can be included upstream and complementary policies play a particularly important role in this sector. High global warming potential gases are generally easier to include upstream, but adjustments may be necessary depending on the category of industrial use. Residential and commercial use of natural gas can be covered upstream or through those delivering natural gas, or can be addressed through efficiency standards.



Dowload the brief (PDF)


Greenhouse Gas Offsets in a Domestic Cap-and-Trade Program

November 2008

This brief presents the key issues and identifies options for the incorporation of greenhouse gas (GHG) offsets into emerging U.S. climate change policy. A GHG offset represents a reduction, avoidance, destruction, or sequestration of GHG emissions from a source not covered by an emission reduction requirement. The elimination of GHG emissions can be converted into tradeable offset credits, and cap-and-trade programs can be designed to permit firms to use these credits to meet their compliance obligations. A carefully crafted and implemented offset program can significantly reduce cap-and-trade compliance costs by providing lower cost emission reduction options. Yet, while economic modeling has shown that incorporation of offsets into a cap-and-trade program can significantly reduce costs and allowance prices, their inclusion is not without controversy or complication. Some are concerned that offset inclusion will reduce the price signal to the point that the innovation and technological change needed to address the climate problem will be diminished. Others focus on the difficulty associated with substantiating offsets as real emission reductions. Important considerations in designing offset programs include the way in which offsets are defined; the types, location and quantity of offsets allowed; and the methods for assessing and crediting projects. Generally speaking, offset projects come in three distinct types: 1) direct emission reductions, 2) indirect emission reductions, and 3) sequestration. Before a project can create an offset credit, the emission reductions should meet all of the following criteria: they must be real, measurable, additional, permanent, monitored, independently verified, measured from a credible baseline, not represent leakage, and be able to convey as a clear property right. Additionality is perhaps the most important yet complicated issue, as it requires an assessment of what would have happened in the absence of the project. Offset project assessments can be either project specific or standardized. A hybrid assessment approach, which uses some standardization methodologies but allows for a degree of flexibility in assessing projects, may be the most effective. Each of these important factors for creating high quality offsets are discussed in this brief.


Download the brief (PDF)

On March 6, 2009, the Pew Center held a Hill briefing on domestic offsets in a cap-and-trade system.  Learn more here.



Greenhouse Gas Emissions Allowance Allocation

November 2008

This policy brief outlines various options for distributing greenhouse gas emission allowances under a cap-and-trade program. Allowances represent a significant source of value and can be used to compensate firms or individuals affected by climate change policy or to raise funds for other socially desirable policy objectives. The basic allocation decision involves whether to freely allocate emission allowances, and if so, to whom, and whether to auction allowances, and if so, how to distribute the revenues. A number of recent cap-and-trade proposals begin with a combined approach that provides some allowances for free and auctions the rest, with the share of auctioned allowances rising over time. If free allocation is chosen, the basis for distribution must be determined. Options include granting allowances based on historical emissions (“grandfathering”), on levels of an output or input, or on an environmental performance “benchmark;” each has implications in terms of who benefits from the value of the allowances. If allowances are auctioned, in addition to deciding how the revenue generated by the auction will be used, policymakers will need to determine the type and frequency of the auction. Many of the same objectives can be met using either auction revenues or free allocation, including easing transition for affected firms and consumers and supporting new technologies. However, allocation decisions will sometimes entail trade-offs among the competing goals of achieving an equitable distribution of economic impacts, ensuring political feasibility, and minimizing overall program cost. Allowance allocation presents both a challenge and an opportunity: no allocation formula will satisfy everyone, yet allocation decisions can be made in ways that ease the transition to a low-carbon economy and enhance the likelihood of meaningful action on climate change.


Download the brief (PDF)


Carbon Market Insights Americas 2008

Promoted in Energy Efficiency section: 
An event hosted by the Pew Center and Point Carbon.

November 12-14, 2008
Marriott Wardman Park Hotel
Washington, DC

The Pew Center on Global Climate Change and Point Carbon invite you to Carbon Market Insights Americas 2008, taking place in the heart of political decision making, the week following the U.S. presidential election.

The event will involve key decision makers in the forthcoming U.S. Administration and Congress and provide participants with a fresh analysis on climate policy and carbon markets in North America. It will offer key insights into how federal policy changes are likely to affect regional cap-and-trade schemes in North America, the global carbon market, and emissions trading around the world.

View the Conference Program

Click here to Register and to get more information about the conference.

President Obama & Climate Change


Click here to visit our Obama Administration page. The page you are now on is no longer being updated.


Statement of Eileen Claussen
President, Pew Center on Global Climate Change
on appointment of Todd Stern, Special Envoy on Climate Change

January 26, 2009

Secretary Clinton’s appointment of America’s first special envoy on climate change is another clear and early signal that the Obama administration is determined to address this issue head on.  This new position can help ensure strong and focused engagement at the highest levels as the United States works with other countries to forge a new international climate agreement.  As special envoy, Todd Stern brings the expertise, insight and judgment needed to represent renewed U.S. leadership in the global effort against climate change.  


Statement of Eileen Claussen
President, Pew Center on Global Climate Change
on President-Elect Obama's New Energy and Environment Appointments

December 11, 2008

This is a team with a keen interest in addressing climate change, and the talent and skills to get the job done.  With Steven Chu, Carol Browner, Lisa Jackson and Nancy Sutley at the helm, President-Elect Obama's Administration will be well-equipped to tackle the challenge of building a new clean energy future that preserves the climate while revitalizing our economy.   We look forward to working with the new Administration to achieve these goals.


On the occasion of President-Elect Barack Obama's Statement to Bi-Partisan Governors' Global Climate Summit


November 18, 2008

This is exactly the kind of leadership the country and the world have been waiting for. President-elect Obama's statement makes clear that he's ready to roll up his sleeves and deliver the action that is needed to protect our climate, our economy, and our national security. He is setting the right goals and choosing the right policies. We urge the bipartisan leadership in Congress to work closely with the new president to quickly enact an economy-wide cap-and-trade system.  Doing so will ensure significant reductions in U.S. emissions at the lowest possible cost, and help set the stage for a new international agreement ensuring that all other major economies contribute their fair share as well.


On the occasion of Senator Barack Obama's election to the presidency, we released the following statement of Eileen Claussen, President, Pew Center on Global Climate Change

November 5, 2008

President-elect Obama faces an array of urgent challenges when he assumes the Presidency on January 20, but I am confident that he will provide the leadership needed to enact a comprehensive climate policy that significantly reduces U.S. greenhouse gas emissions.  I am equally optimistic that new leadership will provide the impetus we need to forge a strong green energy economy and restore America's standing in the world community, and I look forward with great anticipation to working with the Obama administration to achieve these critical goals.


Further Resources on Next Steps for the New Administration:

  • Obama's Remarks: Watch President-elect Obama's remarks to the Governors' Global Climate Summit.
  • Pew Perspective: The Obama administration should seek a greenhouse gas cap-and-trade law, we argue.
  • Climate Policy & U.S. Election: In an article for the Heinrich Boll Foundation's Transatlantic Climate Policy Group, Elliot Diringer discusses prospects for an international climate agreement under a new U.S. president.
  • Congressional Action: Pew's Nikki Roy offers a possible timeline for legislation in the 111th Congress on E&ETV's On Point.
  • Congressional Policy Briefs: This new series of briefs walk policymakers through important design choices for a federal cap-and-trade system and the strengths and weaknesses of various complimentary policy approaches.
  • The Candidates and Climate Change: A Guide to Key Policy Positions: In this presidential voter guide, Pew outlines key policy positions of President-elect Obama and Senator McCain.
  • Cap and Trade 101: This brief report explains how a cap-and-trade program sets a clear limit on GHG emissions and minimizes the cost of achieving this target.


Statement: Looking Ahead to the Obama Administration

Statement of Eileen Claussen
President, Pew Center on Global Climate Change

November 5, 2008

President-elect Obama faces an array of urgent challenges when he assumes the Presidency on January 20, but I am confident that he will provide the leadership needed to enact a comprehensive climate policy that significantly reduces U.S. greenhouse gas emissions.  I am equally optimistic that new leadership will provide the impetus we need to forge a strong green energy economy and restore America's standing in the world community, and I look forward with great anticipation to working with the Obama administration to achieve these critical goals.


Further Reading:

Obama Signals Action: Eileen Claussen’s statement on President-elect Obama’s remarks to the Bi-Partisan Governors’ Global Climate Summit. (November 18, 2008)

Pew Perspective: The Obama administration should seek a greenhouse gas cap-and-trade law, argues a new Pew Center article. (November 2008)

Climate Policy & U.S. Election: In an article for the Transatlantic Climate Policy Group, Elliot Diringer discusses prospects for an international climate agreement under a new U.S. president. (October 2008)

Syndicate content