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CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors

  • Burtraw, Dallas
  • Kahn, Danny
  • Palmer, Karen

The Regional Greenhouse Gas Initiative (RGGI) is an effort by nine Northeast and Mid-Atlantic states to develop a regional, mandatory, market-based cap-and-trade program to reduce greenhouse gas (GHG) emissions from the electricity sector. The initiative is expected to lead to an increase in the price of electricity in the RGGI region and beyond. The implications of these changes for the value of electricity-generating assets and the market value of the firms that own them depends on the initial allocation of carbon dioxide allowances, the composition of generating assets owned by the firm, and the locations of those assets. Changes in asset values inside the RGGI region may be positive or negative, whereas changes outside of the RGGI region are almost always positive but nonetheless vary greatly. Viewing changes at the firm level aggregates and moderates both positive and negative effects on market value compared with what would be observed by looking at changes at individual facilities. Nonetheless, a particular firm’s portfolio of assets is unlikely to reflect the overall composition of assets in the industry as a whole, and some firms are likely to do substantially better or worse than the industry average.

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Article provided by Elsevier in its journal The Electricity Journal.

Volume (Year): 19 (2006)
Issue (Month): 2 (March)
Pages: 79-90

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Handle: RePEc:eee:jelect:v:19:y:2006:i:2:p:79-90
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  1. 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, vol. 72(3), pages 329-360, June.
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  6. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "The Effect of Allowance Allocation on the Cost of Carbon Emission Trading," Discussion Papers dp-01-30-, Resources For the Future.
  7. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," Discussion Papers dp-02-15-, Resources For the Future.
  8. Carolyn Fischer, 2003. "Combining rate-based and cap-and-trade emissions policies," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages S89-S103, December.
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  11. 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 dp-04-37, Resources For the Future.
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