What is the "safety valve"?

Today’s post is by Mark MacLeod, director of special projects for the national climate campaign at Environmental Defense.

Some people have proposed a “safety valve” to control the costs of a cap-and-trade policy to fight global warming. This post explains what a safety valve is, and why it provides only an illusion of cost management.

In a cap-and-trade program, companies can choose either to lower emissions below the cap, or buy extra allowances. Some worry that if many companies need to buy extra allowances, demand will drive up the price, placing an undue burden on businesses.

The “safety valve” or “escape hatch” is meant to address this. It specifies that when prices reach a predetermined dollar value, businesses no longer have to rely on the established supply of allowances available in the market. Instead, the federal government makes new allowances available for sale at a specified price – potentially in an unlimited quantity.

There are two problems with this approach:

  • A safety valve destroys the cap. The hard limit on emissions is the cornerstone of a cap-and-trade policy. Without a solid cap, we can’t be sure our emissions will go down enough to avoid the worst consequences of global warming. A safety valve gives the illusion that we are controlling emissions while allowing more greenhouse gas pollution into the atmosphere.
  • A safety valve limits the economic opportunity of those who develop cleaner technology. Higher permit prices signal the market to invest more in innovative low-carbon technologies – happy news if you’re in the business of inventing and selling ways to cut pollution. A safety valve would sharply curtail incentive for innovation. This drives up costs in the long run, and discourages the development of the clean technology we need.

A safety valve seriously undermines the main advantages of a cap. Its ability to control costs is an illusion, it lets more pollution into the atmosphere, and discourages entrepreneurs from investing in pollution-cutting technology.

If you have any questions about the safety valve, please post them, and we’ll do our best to answer.

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