Can banked allowances undo progress achieved by early reductions in a cap and trade program?
With market forces determining the compliance strategy—whether it be technological improvements, emission reductions from fuel switching, or using banked allowances—annual emissions might vary, but the cumulative reductions over time must be achieved in order to meet the cap. In the case of the Acid Rain Program, sources in the program’s first phase emitted nearly 30 percent below their allocation levels, accumulating substantial early reductions and an equivalent bank of allowances for future use. When the more stringent reduction requirements of the second phase began, the allowance bank provided sources with a level of flexibility in their compliance strategy while emissions continued their downward trend.
