the regional clean air incentive market reclaim n.
Download
Skip this Video
Download Presentation
The Regional Clean Air Incentive Market (RECLAIM)

Loading in 2 Seconds...

play fullscreen
1 / 18

The Regional Clean Air Incentive Market (RECLAIM) - PowerPoint PPT Presentation


  • 138 Views
  • Uploaded on

The Regional Clean Air Incentive Market (RECLAIM). September 2, 2014 David Porter. Outline. What is RECLAIM? Why tradable permits as policy? Policy Design Issue 1: The Property Right What is an Experiment? Policy Design Issue 2: The Market. RECLAIM.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'The Regional Clean Air Incentive Market (RECLAIM)' - beryl


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
outline
Outline
  • What is RECLAIM?
  • Why tradable permits as policy?
  • Policy Design Issue 1: The Property Right
  • What is an Experiment?
  • Policy Design Issue 2: The Market
reclaim
RECLAIM
  • SCAQMD was under pressure from EPA to meet clean air standards
    • LA Basin had the highest number of “high” pollution days of any city in US in the early 1990s
  • Prior to 1994, AQMD used the standard command and control method:
    • BACT – each piece of equipment is regulated
    • R&D firm disincentives and costs ignored (coatings)
    • Fails to offer any incentives for firms to cut back emissions any further than mandated percentages
reclaim1
RECLAIM
  • Rather than attempting to regulate each source, RECLAIM focuses on regulating the net pollution at the facility
    • Each facility is allotted pollution permits and is subject to severe fines if their annual emissions level is not within the fixed limit
  • Businesses which are able to reduce emissions by more that their allotted annual limit are then able to sell their excess reductions to other facilities
    • This creates a significant economic incentive to reduce net emissions, as those emissions credits are a relatively liquid asset
  • By allowing businesses to interact amongst themselves RECLAIM minimizes the costs associated with emissions reductions
policy design issue 1 the property right
Policy Design Issue 1: The Property Right
  • Fixed amount of pollution per year in basin
      • NOX, SOX and VOC
      • Allocate right to pollute Lbs per year
      • Zones (hot spots)
  • Reduce allocation by fixed percent per year
    • The cap declines annually (8.3% per year on average for NOx and 6.8% per year on average for SOx) from 1994 to 2003.
tradable credit
Tradable Credit
  • The Process considered had
      • Allocation of credits (pounds designated by year)
      • Trade credits (swaps, cash, portfolio, etc.)
      • Monitoring and Reporting (quarterly)
      • Restrictions – use only current year credits for current year pollution – NO BANKING
  • Reconciliation Period Created
      • End of year accounting (delay/uncertainty of use)
end of year effect
End of year effect?
  • At year end
      • Long or short
      • Rational Expectations?
  • Proposal to Stagger Credits

Jan. 1 to Dec 31 Credits

1997

1998

1999

2000

2001

2002

Jul. 1 to Jun 30 Credits

1997

1998

1999

2000

2001

microeconomic systems as an experimental science
Microeconomic Systems as an Experimental Science
  • A Microeconomic system is comprised of:
      • The Environment
      • The Institution
  • The Environment consists of:
      • The list of participants
      • The resources to be allocated among participants
      • Participant characteristics which are private information
the institution rules of the game
The Institution: Rules of the Game
  • The Institution consists of:
      • Language
      • Allocation rule which transforms messages into allocations
      • Pricing rule transforms messages into sums to be paid or received
slide10

Outcomes: allocations and prices

Institutions: language of the market, rules of communication and contract

Behavior: rational, bounded, etc.

Environment values, costs, information, resources

science of economics
Science of Economics
  • Control environment parameters
      • Induce value and costs (experimenter knows incentive structure)
      • Information can be controlled
      • The environment can be replicated
  • The Institution (rules) can be changed and outcomes observed and measured
      • Real people
      • Real Incentives
      • Replicable
slide12

Outcomes: allocations and prices

Treatments:

Change rules

Model Predictions

Institutions: language of the market, rules of communication and contract

Behavior: rational, bounded, etc.

Environment values, costs, information, resources

Controlled by Experimenter

experiments and public policy
Experiments and Public Policy
  • Typically, policy design is based on simple models of behavior or “gut-feel”
    • Models are based on conditions that are not faced in the field application
  • Policy impacts can be great if the design is not tested
    • Lab testing of the system to determine possible flaws are standard in engineering but ignored in public policy design
  • Sometimes seeing is believing (details can be important)
an experiment with annual and staggered credits
An Experiment with Annual and Staggered Credits

Year 1 Year 2 Year 3 Year 4 Year 5

policy design issue 2 the market
Policy Design Issue 2: The Market
  • The general market conditions that will be the focus of our design process are:
    • The RECLAIM market is thin with a small number of participants;
    • There is a need only to trade at quarterly compliance intervals when facilities can update their emission plans;
    • There is no history of market trades; and
    • Buyers and sellers would like to transact by selling whole portfolios of credits (all or nothing trading, economies of scale, complementary pollution emissions requirements, etc.)
order types
Order Types
  • A multi-market order for agent i is a vector <bi, qi1, ...., qin, Fi> where:
    • bi >0 means agent i is willing to pay at most bi for the order,
    • bi <0 means agent i is willing to accept at least bi for the order.
    • qij >0 means agent i wants to purchase up to qij units of j in the order,
    • qij <0 means agent i wants to sell up to qij units of j in the order,
    • Fi is a scale factor (0 < Fi< 1) which indicates that agent i is willing to accept any one order of the form <fi bi, fi qi1, ...., fi qin,> where fi [Fi,1].
experiments field
Experiments/Field
  • When there are complements or minimum fills the mechanism outperforms standard practice
  • Not much harm is done when demands are linear
  • During the summer of 2000 there was a drastic increase in the demand for power production.
  • The power industry purchased 67 percent of the available RTCs. Because power-producing facilities only comprise roughly 14 percent of RECLAIM allocations, the increased demand for RTCs led to a decrease in supply. For NOx RTCs in particular, prices increased from approximately $4,284 per ton traded in 1999 to roughly $39,000 per ton traded during the first ten months of 2000.
current condition
Current Condition
  • Energy crisis in California gave the Governor ammunition to let firms (mainly electricity producers) off the hook
    • RECLAIM “discontinued”
    • Smog alerts on the rise
ad