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Carbon Allowance Auction Design: An Assessment of Options for the United States

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  • Giuseppe Lopomo
  • Leslie M. Marx
  • David McAdams
  • Brian Murray

Abstract

Carbon allowance auctions are a component of existing and proposed regional cap-and-trade programs in the United States and are also included in recent proposed bills in the U.S. Congress that would establish a national cap-and-trade program to regulate greenhouse gases ("carbon"). We discuss and evaluate the two leading candidates for auction format: a uniform-price sealed-bid auction and an ascending-bid dynamic auction, either of which could be augmented with a "price collar" to ensure that the price of allowances is neither too high nor too low. We identify the primary trade-offs between these two formats as applied to carbon allowance auctions and suggest additional auction design features that address potential concerns about efficiency losses from collusion and other factors. We conclude that, based on currently available evidence, a uniform-price sealed-bid auction is more appropriate for the sale of carbon allowances than the other leading auction formats, in part because it offers increased robustness to collusion without significant sacrifice of price discovery. Copyright 2011, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/reep/req024
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Bibliographic Info

Article provided by Association of Environmental and Resource Economists in its journal Review of Environmental Economics and Policy.

Volume (Year): 5 (2011)
Issue (Month): 1 (Winter)
Pages: 25-43

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Handle: RePEc:oup:renvpo:v:5:y:2011:i:1:p:25-43

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References

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Citations

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Cited by:
  1. Chih Chang, Ching & Chia Lai, Tin, 2013. "Carbon allowance allocation in the transportation industry," Energy Policy, Elsevier, vol. 63(C), pages 1091-1097.
  2. Rachel Bodsky & Domenic Donato & Kevin James & David Porter, 2012. "Experimental Evidence on the Properties of the California’s Cap and Trade Price Containment Reserve," Working Papers 12-12, Chapman University, Economic Science Institute.
  3. Veronika Grimm & Lyuba Ilieva, 2013. "An experiment on emissions trading: the effect of different allocation mechanisms," Journal of Regulatory Economics, Springer, vol. 44(3), pages 308-338, December.

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