Design alternatives for a domestic carbon trading scheme in the United States

One critical aspect of the Kyoto Protocol is its flexibility in compliance. Countries or groups of countries are free to choose their own implementation strategies. Should the United States ratify the Protocol, it will most likely use emissions trading in some form to implement this accord. Two variations on a US domestic carbon trading system are presented here. One is an auction system controlling carbon at the point of energy production and distribution. The second is a hybrid system allocating permits to large combustors and controlling smaller sources through standards. Within this paper we describe and compare the main attributes of each system. Separate sections also discuss various methods for allocating permits and incorporating standards.