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Consignment auctions of free emissions allowances

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  • Burtraw, Dallas
  • McCormack, Kristen

Abstract

While the initial distribution of emissions allowances is usually thought to be independent of the emissions outcome, free allocation can affect the efficiency and fairness of allowance trading. Inefficiency may result from thin allowance markets, poor price discovery, and regulatory or organizational complexities that hinder the recognition of opportunity costs. Concerns about fairness may result from intransparency in the process of transferring substantial allowance value. We explore the role of consignment auctions in mitigating these concerns. These revenue-neutral auctions return the financial value of allowances to their original holders while revealing prices and directing allowances to their highest-valued use. They also can be used to support a minimum price when allowances are freely distributed, which may facilitate program linkage. Consignment auctions have minimal administrative costs and do not necessarily involve government. Experience indicates that they can play an important role, especially in new markets.

Suggested Citation

  • Burtraw, Dallas & McCormack, Kristen, 2017. "Consignment auctions of free emissions allowances," Energy Policy, Elsevier, vol. 107(C), pages 337-344.
    • Handle: RePEc:eee:enepol:v:107:y:2017:i:c:p:337-344
    DOI: 10.1016/j.enpol.2017.04.041
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    JEL classification:

    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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