So, can California’s cap-and-trade program be saved? Yes. But it will require moderating the view that there is one single emissions target that the state must hit. Instead, the program should be revised to have a price floor that is substantially higher than the current level, which is so low that it does not significantly change the behavior of emitters. And the program should have a credible price ceiling at a level that won’t trigger a political crisis. The current program has a small buffer of allowances that can be released at high prices, but would have still risked skyrocketing prices if California’s economy had experienced more robust growth. ...
But should California’s cap-and-trade program be saved? I think so. My first choice would be to replace it with a tax on GHG emissions, setting a reliable price that would make it easier for businesses to plan and invest. But cap-and-trade is already the law in California and with a credible price floor and ceiling it can still be an effective part of the state’s climate plan.
Source: Energy Institute at Haas blog