Repost: What’s the Worst That Could Happen?

[This post is co-authored with my three collaborators in cap-and-trade work for the California Air Resources Board:  Frank Wolak, Jim Bushell and Matt Zaragoza-Watkins.]

California’s year-and-a-half old cap-and-trade market for reducing greenhouse gases (GHGs) has drawn renewed interest over the last few weeks, since the EPA announced its initiative for limiting greenhouse gases from existing power plants.  California’s program is seen by many as a model of how state-level policies can lower GHGs without imposing undue costs on the economy.  This is heartening to supporters of the program who argued that by going first California could develop a market-based system for emissions reduction that could be a model for other regions and countries.

Of course, being on the “bleeding edge” of any movement means learning from risks and mistakes as well as from successes.  So far, California’s program has operated smoothly and is mostly viewed as a…

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One thought on “Repost: What’s the Worst That Could Happen?

  1. mcubedecon Post author

    Here’s my comment on this post from the UC Energy Institute and AB 32 Market Surveillance Group:
    I much appreciate the approach in this analysis, focusing on the range of potential outcomes and the drivers of those outcomes. This is how most policy analysis should be done rather than choosing a single point forecast that most assuredly will be wrong.

    However, I have an important reservation: It is not possible to place probabilities on future events that are embedded with “deep uncertainty” (see for example: http://www.rand.org/pubs/research_briefs/RB9701.html). Assuming that past events driven by complex, changing underlying circumstances (more reflective of chaos than a Markov process) are a good predictor of future outcomes is not a proper representation for policy makers.

    This analysis progresses towards a more appropriate presentation that focuses on the vulnerabilities in the system, the consequences or risks with those vulnerabilities, and proposing solutions that might mitigate those risks. But I think being upfront about an inability to place quantitative probabilities would be more honest.

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