Advanced Search
MyIDEAS: Login to save this article or follow this journal

Compensation rules for climate policy in the electricity sector

Contents:

Author Info

  • Dallas Burtraw

    (Resources for the Future, Washington, DC)

  • Karen Palmer

    (Resources for the Future, Washington, DC)

Abstract

Most previous cap and trade programs have distributed emission allowances for free to incumbent producers. However, in the electricity sector the value of CO 2 allowances may be far in excess of costs to industry and giving them away to firms diverts allowance value from other purposes. Using a detailed simulation model, this paper shows that compensation to firms losing asset value under a climate cap and trade policy can be achieved for a small fraction of total allowance value, if targeted carefully. However, the economic efficiency cost of providing incremental compensation to reach the fully compensated level is many multiples of that incremental compensation. These considerations might move policymakers away from free allocation of CO 2 emission allowances in the electricity sector. © 2008 by the Association for Public Policy Analysis and Management.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1002/pam.20378
File Function: Link to full text; subscription required
Download Restriction: no

Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

Volume (Year): 27 (2008)
Issue (Month): 4 ()
Pages: 819-847

as in new window
Handle: RePEc:wly:jpamgt:v:27:y:2008:i:4:p:819-847

Contact details of provider:
Web page: http://www3.interscience.wiley.com/journal/34787/home

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bovenberg, A.L. & Mooij, R.A. de, 1994. "Environmental levies and distortionary taxation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152985, Tilburg University.
  2. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," Discussion Papers, Resources For the Future dp-04-37, Resources For the Future.
  3. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, Elsevier, vol. 72(3), pages 329-360, June.
  4. A. Lans Bovenberg & Lawrence H. Goulder, 2000. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does it Cost?," NBER Working Papers 7654, National Bureau of Economic Research, Inc.
  5. Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
  6. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," The Electricity Journal, Elsevier, Elsevier, vol. 15(5), pages 51-62, June.
  7. S. Paltsev & J. Reilly & H. Jacoby & A. Gurgel & G. Metcalf & A. Sokolov & J. Holak, 2007. "Assessment of U.S. Cap-and-Trade Proposals," Working Papers, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research 0705, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  8. Burtraw, Dallas & Palmer, Karen & Kahn, Daniel, 2005. "CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors," Discussion Papers, Resources For the Future dp-05-55, Resources For the Future.
  9. Bard Harstad & Gunnar S. Eskeland, 2006. "Trading for the Future: Signaling in Permit Markets," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1429, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes: General equilibrium analyses," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73560, Tilburg University.
  11. Palmer, Karen & Butraw, Dallas & Kahn, Danny, 2006. "Simple Rules for Targeting CO2 Allowance Allocations to Compensate Firms," Discussion Papers, Resources For the Future dp-06-28, Resources For the Future.
  12. Cameron Hepburn & John Quah & Robert Ritz, 2006. "Emissions Trading and Profit-Neutral Grandfathering," Economics Series Working Papers, University of Oxford, Department of Economics 295, University of Oxford, Department of Economics.
  13. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  14. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 17(2), pages 291-327, October.
  15. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0639, Faculty of Economics, University of Cambridge.
  16. Dahl, Carol A., 1993. "A survey of energy demand elasticities in support of the development of the NEMS," MPRA Paper 13962, University Library of Munich, Germany.
  17. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0644, Faculty of Economics, University of Cambridge.
  18. Sterner, Thomas & Muller, Adrian, 2006. "Output and Abatement Effects of Allocation Readjustment in Permit Trade," Discussion Papers, Resources For the Future dp-06-49, Resources For the Future.
  19. Polinsky, A Mitchell, 1972. "Probabilistic Compensation Criteria," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 86(3), pages 407-25, August.
  20. Knut Einar Rosendahl, 2007. "Incentives and quota prices in an emission trading scheme with updating," Discussion Papers, Research Department of Statistics Norway 495, Research Department of Statistics Norway.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wly:jpamgt:v:27:y:2008:i:4:p:819-847. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.