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Allocation and leakage in regional cap-and-trade markets for CO2

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  • Bushnell, James
  • Chen, Yihsu

Abstract

The allocation or assignment of the emissions permits is one of the most contentious elements of the design of cap-and-trade systems In this paper we develop a detailed representation of the U.S. western electricity market to assess the potential impacts of various permit allocation proposals. Several proposals involve the “updating” of allocations, where the allocation is tied to the ongoing output, or input use, of plants. These allocation proposals are designed with the goals of limiting the pass-through of carbon costs to product prices, mitigating leakage, and of mitigating the costs to high-emissions firms. However, allocation updating can also inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms.

Suggested Citation

  • Bushnell, James & Chen, Yihsu, 2012. "Allocation and leakage in regional cap-and-trade markets for CO2," Resource and Energy Economics, Elsevier, vol. 34(4), pages 647-668.
  • Handle: RePEc:eee:resene:v:34:y:2012:i:4:p:647-668
    DOI: 10.1016/j.reseneeco.2012.05.008
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    Citations

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    Cited by:

    1. Meunier, Guy & Ponssard, Jean-Pierre, 2014. "Capacity decisions with demand fluctuations and carbon leakage," Resource and Energy Economics, Elsevier, vol. 36(2), pages 436-454.
    2. Ibanez, Marcela & Blackman, Allen, 2015. "Environmental and Economic Impacts of Growing Certified Organic Coffee in Colombia," Discussion Papers dp-15-02, Resources For the Future.
    3. repec:aea:aejpol:v:9:y:2017:i:2:p:57-90 is not listed on IDEAS
    4. Justin Caron, Sebastian Rausch, and Niven Winchester, 2015. "Leakage from sub-national climate policy: The case of Californias capandtrade program," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    5. Ralf Martin & Mirabelle Mu?ls & Laure B. de Preux & Ulrich J. Wagner, 2014. "Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme," American Economic Review, American Economic Association, vol. 104(8), pages 2482-2508, August.
    6. Harrison Fell & Peter Maniloff, 2015. "Beneficial Leakage: The Effect of the Regional Greenhouse Gas Initiative on Aggregate Emissions," Working Papers 2015-06, Colorado School of Mines, Division of Economics and Business.
    7. repec:eee:proeco:v:193:y:2017:i:c:p:172-182 is not listed on IDEAS
    8. repec:gam:jsusta:v:8:y:2015:i:1:p:3:d:61052 is not listed on IDEAS
    9. repec:eee:jeeman:v:87:y:2018:i:c:p:1-23 is not listed on IDEAS
    10. repec:eee:eneeco:v:65:y:2017:i:c:p:251-261 is not listed on IDEAS
    11. Bushnell, James & Chen, Yihsu & Zaragoza-Watkins, Matthew, 2014. "Downstream regulation of CO2 emissions in California's electricity sector," Energy Policy, Elsevier, vol. 64(C), pages 313-323.
    12. James B. Bushnell & Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2017. "Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 57-90, May.
    13. Feijoo, Felipe & Das, Tapas K., 2014. "Design of Pareto optimal CO2 cap-and-trade policies for deregulated electricity networks," Applied Energy, Elsevier, vol. 119(C), pages 371-383.

    More about this item

    Keywords

    Allowance trading; Leakage; Carbon regulation; Electricity markets;

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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