Carbon pricing, politics and the Clean Power Plan

This paper examines the role that emissions trading among states can play in implementing the Clean Power Plan in the U.S., reviewing the structure and performance of existing carbon markets as examples for how a multistate carbon market might be implemented. Additionally, given the politically contentious environment surrounding the Clean Power Plan, the paper reviews the arguments of states opposing the Clean Power Plan and analyzes to what extent this opposition is driven by ideologically motivated political factors as opposed to economic factors. Overall, I find that while both political and economic factors drive opposition to the Clean Power Plan, ideologically motivated political factors seem to play a stronger role in states’ attitudes. With regard to cost-effective implementation of the Clean Power Plan, a review of the literature suggests that thoroughly incorporating market-driven carbon pricing mechanisms and facilitating coordination among states will be crucial in determining the rule’s overall effectiveness.