(Overly) Great Expectations: Carbon Pricing and Revenue Uncertainty in California

James Bushnell

National Tax Journal, 2017, vol. 70, issue 4, 837-854

Abstract: California's cap-and-trade market for greenhouse gasses (GHG) began in 2013. An important feature of the California trading system was its allowance price-containment policies, intended to limit the range of allowance prices. The scope and ambition of the system had been expected to set an example for other states and countries about the efficacy and revenue potential of cap-and-trade systems. However, despite achieving its emissions reductions targets at lower than expected costs, the system has been considered a disappointment in the political arena. A major source of disillusionment with the California system has been its failure to generate the expected amount of revenues that would have contributed to a wide range of public expenditures. The design of the price-containment system, while effective at maintaining a relatively high marginal carbon price, contributes to the wide range of uncertainty over the revenue potential of allowance sales.

Date: 2017
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