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Allocation and leakage in regional cap-and-trade markets for CO2

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  • Bushnell, James
  • Chen, Yihsu
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    Abstract

    The allocation or assignment of the emissions permits is one of the most contentious elements of the design of cap-and-trade systems In this paper we develop a detailed representation of the U.S. western electricity market to assess the potential impacts of various permit allocation proposals. Several proposals involve the “updating” of allocations, where the allocation is tied to the ongoing output, or input use, of plants. These allocation proposals are designed with the goals of limiting the pass-through of carbon costs to product prices, mitigating leakage, and of mitigating the costs to high-emissions firms. However, allocation updating can also inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Resource and Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 4 ()
    Pages: 647-668

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    Handle: RePEc:eee:resene:v:34:y:2012:i:4:p:647-668

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    Web page: http://www.elsevier.com/locate/inca/505569

    Related research

    Keywords: Allowance trading; Leakage; Carbon regulation; Electricity markets;

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    References

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    15. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics 0645, Faculty of Economics, University of Cambridge.
    16. Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
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    Cited by:
    1. Guy Meunier & Jean-Pierre Ponssard, 2013. "Capacity decisions with demand fluctuations and carbon leakage," Working Papers hal-00347650, HAL.
    2. Bushnell, James & Chen, Yihsu & Zaragoza-Watkins, Matthew, 2014. "Downstream regulation of CO2 emissions in California's electricity sector," Energy Policy, Elsevier, vol. 64(C), pages 313-323.

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