Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California
AbstractThe regulation of greenhouse gas emissions from the electricity sector within a cap-and-trade system poses significant policy questions about how to allocate tradable emission allowances. Allocation conveys tremendous value and can have efficiency consequences. This research uses simulation modeling for the electricity sector to examine different approaches to allocation under a cap-and-trade program in California. The decision affects prices and other aspects of the electricity sector, as well as implications for the overall cost of climate policy. An important issue is the opportunity for emission reductions in California to be offset by emission increases in neighboring regions that supply electricity to the state. The amount of emission leakage (i.e. an increase in CO2 emissions outside of California as a result of the program) varies with the regulatory design of the program.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-09-41.
Date of creation: 07 Oct 2009
Date of revision:
cap-and-trade; electricity generation; electricity sector; emissions; regulation; governance; allocation; California;
Find related papers by JEL classification:
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-16 (All new papers)
- NEP-CMP-2010-01-16 (Computational Economics)
- NEP-ENE-2010-01-16 (Energy Economics)
- NEP-ENV-2010-01-16 (Environmental Economics)
- NEP-REG-2010-01-16 (Regulation)
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