Introduction

This backgrounder provides a preliminary description of policy options for organizing and dividing responsibilities among private and public participants in a domestic greenhouse gas emissions trading market. It supplements the proposal outlined in the November 1999 Progressive Policy Institute (PPI) policy report "Reframing the Climate Change Debate: The United States Should Build a Domestic Market Now for Greenhouse Gas Emissions Reductions." The PPI proposal takes advantage of key features of the on-going, successful, market-based sulfur dioxide trading program and Toxics Release Inventory.

Markets thrive on widely available, credible information about prices, supply, and demand. Similarly, a domestic greenhouse gas emissions trading market will depend on the powerful engine of information about actual emissions and climate- friendly behavior throughout the economy. The proposed market would use direct reporting of emissions reductions instead of a government-based certification process. This would be similar to procedures now employed successfully by the Securities and Exchange Commission to regulate financial reporting, and the Environmental Protection Agency's Toxics Release Inventory for reporting chemical releases to the environment. Market participants would be responsible for the veracity of information they submit to the government and an independently operated greenhouse gas emissions market exchange -- and be subject to penalties if the information is found incorrect through government-led spot audits or citizen-initiated legal actions.