Rules of the Game

August 1, 2011
Bowman Cutter, M. Rhead Enion, Ann Carlson, Cara Horowitz

In this paper, we assess the adequacy of the measures that have been proposed by the California Air Resources Board (CARB) to limit risks of market manipulation and rules violations in its greenhouse gas (GHG) emissions trading program. We focus in particular on the extent to which CARB has created conditions to ensure transparency in the market and sufficient liquidity to reduce the risk of market domination by a single or small number of participants. We also address CARB’s ability to detect foul play, take necessary enforcement actions, and impose adequate penalties. In our analysis, we take a careful look at the experiences of regulators within other emissions trading programs and draw lessons from those experiences.

In general, we conclude that CARB has in fact crafted a market likely to be both transparent and liquid, though we have a series of recommendations to improve further these crucial market qualities. CARB has taken important steps to construct a liquid, efficient and transparent market by taking the best practices from other allowance trading programs. We think it is unlikely that CARB will experience market manipulation that can significantly affect the efficiency or fairness of the market. We do believe, however, that our recommendations would improve the provisions and therefore reduce the (small) risk of illiquid and inefficient markets.

Download publication

See All
Jan 20, 2023

Amicus Brief for Congressional Dems in State of Ohio et al. v. Environmental Protection Agency et al

Read More
Jan 12, 2023

Increasing Access to Green Space and Affordable Housing in Los Angeles through Joint Development Projects

Read More