above a certain level, units that were to be auctioned are instead placed in the MSR. When the
quantity of units in the market is below a predetermined level, it reintroduces some of the
previously withheld supply. As the MSR withdraws supply gradually, it may be better suited to
addressing temporary imbalances rather than
structural oversupply. Figure 47 demonstrates
the way in which the MSR would alter supply
given an illustrative emissions trajectory.
Price controls can be difficult to integrate with
other policy mechanisms and may create
difficulties in linking with other markets. By
making supply responsive to prices, the use of
price controls may undermine the environmental
integrity of a link. It is possible that if a price
floor is triggered in one jurisdiction, it can
increase supply to such an extent that net emissions in that jurisdiction exceed the emissions
that would have occurred under business as
usual. Price controls can also have difficult distributional consequences; if triggered, they may
result in a net transfer of resources from one
jurisdiction to another. Harmonising price
Fig. 46 California’s auction reserve price has limited falls in the carbon price, but also reduced revenues. Source
Climate Policy Initiative (2016)
Fig. 45 Soft price floors and ceilings may result in prices deviating outside their target range. Source Regional
Greenhouse Gas Initiative (2016)
Special Report 4: China’s Energy System Revolution
537
quantity of units in the market is below a predetermined level, it reintroduces some of the
previously withheld supply. As the MSR withdraws supply gradually, it may be better suited to
addressing temporary imbalances rather than
structural oversupply. Figure 47 demonstrates
the way in which the MSR would alter supply
given an illustrative emissions trajectory.
Price controls can be difficult to integrate with
other policy mechanisms and may create
difficulties in linking with other markets. By
making supply responsive to prices, the use of
price controls may undermine the environmental
integrity of a link. It is possible that if a price
floor is triggered in one jurisdiction, it can
increase supply to such an extent that net emissions in that jurisdiction exceed the emissions
that would have occurred under business as
usual. Price controls can also have difficult distributional consequences; if triggered, they may
result in a net transfer of resources from one
jurisdiction to another. Harmonising price
Fig. 46 California’s auction reserve price has limited falls in the carbon price, but also reduced revenues. Source
Climate Policy Initiative (2016)
Fig. 45 Soft price floors and ceilings may result in prices deviating outside their target range. Source Regional
Greenhouse Gas Initiative (2016)
Special Report 4: China’s Energy System Revolution
537