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Market-based clean performance standards as building blocks for carbon pricing

The Problem

Because industrial sectors contribute a large fraction of total greenhouse gas emissions in the United States, addressing their emissions is an essential element of combating climate change. However, emissions reduction is costly for industrial firms with energy-intensive production processes; requiring significant investment in low-carbon manufacturing technologies can disadvantage domestic firms relative to their unregulated, international competitors.

The Proposal

Fischer proposes using market-based tradable performance standards to reduce industrial carbon emissions. The proposal would set carbon emissions benchmarks tailored to energy-intensive industrial production processes against which a firm’s emissions would be evaluated. Firms with emissions in excess of their benchmark would be required to pay; firms that reduce emissions below their benchmark would receive tradable credits, which can be sold to other firms facing higher abatement costs.

 

The author did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. The author is currently not an officer, director, or board member of any organization with a financial or political interest in this article.

Carolyn Fischer

Professor of Environmental Economics - Vrije Universiteit – Amsterdam

Canada 150 Research Chair in Climate Economics, Innovation and Policy - University of Ottawa

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