Many of the most significant efforts to curb greenhouse gas emissions employ market mechanisms.  Notably, under the European Union Emissions Trading Scheme (EU ETS), major emitters in Europe are required to obtain allowances for all of their greenhouse gas emissions, which they can trade with other emitters and market players in order to reduce compliance costs.  These emitters can also meet their emissions obligations through the purchase of carbon offsets certified under the Kyoto Protocol's Clean Development Mechanism (CDM)-these represent emissions reductions achieved through emissions mitigation projects in the developing world.  The goal of these kinds of market mechanisms is to achieve desired emissions reductions at least cost.  However, many such climate policy instruments that offer efficient greenhouse gas reductions in theory are subject to a raft of political, economic, regulatory, and legal challenges in practice.  Unintended consequences can arise as a result of monitoring and enforcement weaknesses in policy regimes, unanticipated interactions between different policy instruments, strong political incentives for ongoing government intervention, and the fact that policies are administered by overlapping jurisdictions.

PESD research examines the operation of these kinds of climate policies when subject to the messy realities of implementation.  We study policies including cap-and-trade approaches like the EU ETS, carbon taxes of various designs, carbon offsets, low carbon fuel standards, renewable energy mandates, tax credits to encourage innovation, and feed-in tariffs that guarantee returns for investments in low-carbon energy.  Two particular areas of interest are how to engage major emerging nations like China and India in climate change mitigation, and how jurisdictional fragmentation-for example between federal, regional, state, and local bodies in the United States-influences policy effectiveness.

Analysis of carbon offset programs and how to improve them has been one longtime research focus at PESD, starting with early work by PESD affiliated faculty Michael Wara.  Wara's research highlighted the perverse incentives and economic inefficiencies created by CDM, for example in cases of industrial gas manufacture where carbon offsets from mitigation of greenhouse gas byproducts are more profitable than actual product sales.  A more recent study by PESD researchers Gang He and Richard Morse focused attention on the crucial process of assessing "additionality"-whether a project gaining offset credit would have happened even in the absence of the offset.   From studying the high-profile case of wind power projects in China, He and Morse identified fundamental flaws in the structure of CDM that allow Chinese government bodies to control, intentionally or otherwise, whether projects meet the additionality criterion for being granted offsets.  (Analagous problems are likely to be uncovered in other countries.) 

Another important research area for PESD is how climate policies can best be targeted to encourage technological innovation.  PESD researcher Varun Rai studied the lessons of previous energy technologies for the emerging technology of large-scale geological carbon capture and sequestration (CCS), which some hope can play a major role in reducing carbon emissions from fossil fuel combustion.  PESD graduate researcher John Anderson is performing a comprehensive analysis of how installation costs change with cumulative number of wind energy projects installed in various regions in the United States, which should help further our understanding of technological innovation in the renewable energy sector and the policy levers that can encourage it.