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 Allowances | Price Collar | Targets and Timetables |Offsets
Price Collar
A "price collar" would impose an upper limit (“ceiling”) and a lower limit (“floor”) on the price that a regulated entity would have to pay for the allowances needed to help meet its reduction target under a cap-and-trade system. The price floor will assure the price of carbon does not fall below a certain level and assure investment in energy efficiency. The price ceiling will help to protect consumers, jobs, and the economy from price volatility and market manipulation.
A price collar is “triggered” when the market price of existing allowances either exceeds the maximum price level or falls below the minimum price level. To be most effective, the price collar should initially be set at a narrow range and gradually expand over time as cleaner technologies become available. This will enable it to send a price signal, while minimizing price volatility.
Benefits of a Price Collar
A price collar offers important benefits:
- Cost Certainty
A price collar establishes cost certainty and minimizes price volatility and market manipulation. This ensures that a regulated facility (power plant, manufacturer, etc.) can comply with a carbon policy within a price range for allowances.
- Financial Protection
A price collar helps to protect against harm to the U.S. economy and international competitiveness. It protects electricity consumers, workers, and industries from unexpected price increases for emissions controls—and from market manipulation.
- Transitional Design
A price collar could be transitional in design and eventually be phased out. It would provide the necessary protection against volatile energy prices for consumers and industries during a transition until advanced climate technologies are widely available and commercially deployable, and other major economies and trade competitors of the United States have established comparable GHG mandates. At that point, the price collar could be phased out.
- Straightforward Approach
Other approaches fail to establish a clear price signal, may not respond proactively enough to changing market conditions, and may only postpone economic disruptions. A price collar is a straightforward approach that allows companies to develop more effective compliance plans.
Find out what others are saying about the importance of a price collar in climate change legislation.
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