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Study of a Market Approach to Reducing Greenhouse Gas Emissions

What is this study?

In March 2016, the Oregon Legislature directed the Department of Environmental Quality to study considerations for implementing a market-based greenhouse gas (GHG) reduction program in Oregon. The legislature specified several areas for DEQ to focus on, including general policy design necessary to achieve Oregon’s statewide GHG reduction goals, methods to design a program to minimize negative effects on businesses, disadvantaged communities and rural parts of the state, and how the program would interact with Oregon’s existing climate policies.

What did DEQ evaluate?

DEQ’s study focused on a “cap-and-trade” program that would establish a firm and declining limit on most of Oregon’s GHG emissions and create a marketplace that could be linked to existing cap-and-trade programs in California and Quebec.
A cap-and-trade program establishes an overall limit (the cap) on GHG emissions from certain sources of pollution, such as electricity providers, industrial facilities, and fossil fuel suppliers. Permits or “allowances” are issued by the state to regulated entities. Each allowance permits a business to emit or supply fuel that emits one ton of emissions. For example, if a program has a cap of 50 million tons of pollution in a given year, the state would issue 50 million allowances in that year. These allowances can be bought and sold on the market (the trade).

What did DEQ find?

Our study highlights a dozen key findings. Below is a partial list of these findings.
  • Cap-and-trade provides a firm limit on GHG emissions: The establishment of a cap provides assurance that, overall, emissions from covered sources of GHGs will not exceed the set limit.
  • Cap-and-trade offers a flexible, cost-effective mechanism for reducing GHGs: The trading mechanism provided by this policy should drive down emissions where it is cheapest to do so allowing the program to achieve the planned emission reductions at least cost.
  • Economic effects are likely to be small statewide: Modeling conducted for this study suggests that the overall effect on Oregon’s economy from a cap-and-trade program could be slightly positive or slightly negative, but either effect would be very small relative to the size of the state economy. However, this modeling did not take into account the health benefits provided by reducing GHG emissions and the consequential reduction in pollutants linked to local health issues. Thus, the modeling likely understates the economic benefits from a cap-and-trade program in Oregon.
  • Economic effects of the program will vary across the state: Though economic effects would be small at the statewide level, some communities and business sectors are likely to be more significantly affected by the carbon price.
  • Effects to businesses exposed to competition outside the state should be mitigated: Industries that are in particularly competitive markets might face pressure to relocate some or all of their economic activity due to the carbon price imposed by a cap-and-trade policy. However, DEQ’s study finds that cap-and-trade offers the state tools to directly offset costs to these businesses and preserve the integrity of the program.
  • Revenue generated by the program should be used to benefit disadvantaged and rural communities. A cap-and-trade program should include methods to mitigate the inherently regressive nature of a price on carbon and address the concerns and needs of the most vulnerable communities in the state. For example, revenue generated by a cap-trade-program could be used for worker training, to empower community transition to jobs in a low-carbon economy, and to develop energy efficiency projects for low-income housing.
  • A cap-and-trade program can work with Oregon’s existing climate policies. The emission reductions achieved by policies such as the Renewable Portfolio Standard and the Clean Fuels Program would ease compliance with a carbon market, while a cap-and-trade program can be designed to avoid duplicating costs on regulated businesses and households.

Where can I learn more?

View complete documentation of DEQ’s study:
Email questions for DEQ

What was DEQ’s public process?

DEQ held three public meetings to gather stakeholder input on this study. At the outset, the well-attended public meeting generated robust input on our planned approach and study outline. We issued a draft of this study in November 2016 for public comment and held a meeting in early December 2016 to solicit verbal feedback. Finally, in January 2017 we held a public workshop to discuss the economic modeling conducted to inform this study. 


For more information, contact Colin McConnaha at 503-229-5094 (toll-free in Oregon at 800-452-4011, ex. 5094)

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