Research Primer: Preparing for a Cap-and-Trade Program
NERA Economic Consulting has published the first issue of a new newsletter designed to help US companies cope with the likelihood of a cap-and-trade system. Mandatory climate policies in the US are getting closer and promise to lead to major impacts on companies in virtually every sector, particularly the energy-intensive. sectors. Every company can and should prepare for these developments.
In particular:
- Every company should understand the implications of a carbon price for its business. At a minimum, companies need to understand what a carbon-constrained world could mean for them. In many cases, indirect effects like changes to the prices of inputs and impacts on revenue may be just as important as the costs of direct emissions.
- Every company should evaluate the financial impacts of alternative future mandatory carbon policies. These policies should include potential cap-and-trade programs as well as various renewable and energy efficiency programs that are likely to be put in place. These analyses can clarify “what is at stake” under different potential policies.
- Climate policy effects should be included in planning for investment and other major decisions. Climate policy affects the costs and revenues of major investments, both directly through emissions costs and indirectly through changes in fuel prices and product prices. Economic modeling can help clarify these impacts and point the way to superior decisions.
- Assessing climate policy impacts is an ongoing task. Companies will need to address the effects of climate policy in numerous ongoing decisions, including pricing decisions. Economic modeling is thus an ongoing task to make sure the right information is available for these decisions.
NERA has developed its own Carbon Financial Impacts Model, which it has used for more than five years to evaluate the impacts of climate change policies for numerous companies and sectors, including electricity, oil and gas, refining, pulp and paper, cement, aviation, and others.
Climate Policy Economics Insights can be downloaded free of charge.
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