Lessons Learned

Promptly define market rules and regulations clearly and precisely at the outset to minimize uncertainty and the exploitation of loopholes.

Consider mandatory auctioning of at least a portion of emissions allowances rather than allocating all freely, to create a more realistic price for carbon credits and encourage more companies to reduce their own emissions.

Set caps tightly based on a hard look at historic emissions data, and see that companies have not recently undertaken carbon-intensive activities in order to secure higher emissions allocations.

Raise the standards and level of scrutiny for projects in developing and industrialized countries that generate carbon credits, to give such trading programs greater credibility.

Consider tax adjustments or other compensations for industries that do business in markets where competitors are not subject to mandatory carbon caps.

—S.A.C.