Upstream vs. downstream CO2 trading: A comparison for the electricity context
AbstractIn electricity, "downstream" CO2 regulation requires retail suppliers to buy energy from a mix of sources so that their weighted emissions satisfy a standard. It has been argued that such "load-based" regulation would solve emissions leakage, cost consumers less, and provide more incentive for energy efficiency than traditional source-based cap-and-trade programs. Because pure load-based trading complicates spot power markets, variants (GEAC and CO2RC) that separate emissions attributes from energy have been proposed. When all generators and consumers come under such a system, these load-based programs are equivalent to source-based trading in which emissions allowances are allocated by various rules, and have no necessary cost advantage. The GEAC and CO2RC systems are equivalent to giving allowances free to generators, and requiring consumers either to subsidize generation or buy back excess allowances, respectively. As avoided energy costs under source-based and pure load-based trading are equal, the latter provides no additional incentive for energy efficiency. The speculative benefits of load-based systems are unjustified in light of their additional administrative complexity and cost, the threat that they pose to the competitiveness and efficiency of electricity spot markets, and the complications that would arise when transition to a federal cap-and-trade system occurs.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Policy.
Volume (Year): 38 (2010)
Issue (Month): 7 (July)
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Web page: http://www.elsevier.com/locate/enpol
Emissions trading Greenhouse Gas regulation Electricity market models;
Other versions of this item:
- Hobbs, Benjamin & Bushnell, James & Wolak, Frank, 2010. "Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context," Staff General Research Papers 31184, Iowa State University, Department of Economics.
- Hobbs, B.F. & Bushnell, J. & Wolak, F.A., 2010. "Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context," Cambridge Working Papers in Economics 1018, Faculty of Economics, University of Cambridge.
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
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- Erin T. Mansur, 2011.
"Upstream versus Downstream Implementation of Climate Policy,"
in: The Design and Implementation of US Climate Policy, pages 179-193
National Bureau of Economic Research, Inc.
- Erin T. Mansur, 2010. "Upstream versus Downstream Implementation of Climate Policy," NBER Working Papers 16116, National Bureau of Economic Research, Inc.
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