While modest allowance price fluctuations are expected and can be beneficial, excessive volatility driven by unnecessary market uncertainty or market manipulation is problematic and should be avoided. This can be accomplished by including the following features in climate legislation:
- A comprehensive cap covering the broadest feasible set of emission sources
- Banking of emission allowances
- Effective carbon market regulation
- Ample access to high quality offsets
- Robust complementary measures to promote energy efficiency, cleaner transportation options, and energy supply technology transformation
- An allowance price floor established through a reserve price in the primary allowance auction
- A strategic offset and allowance reserve made available at a trigger price set to avoid undue economic harm.