Allocation and Leakage in Regional Cap-And-Trade Markets for CO2
The allocation or assignment of emissions allowances is among the most contentious elements of the design of emissions trading systems. Policy-makers usually try to satisfy a range of goals through the allocation process, including easing the transition costs for high-emissions firms, reducing leakage to unregulated regions, and mitigating the impact of the regulations on product prices such as electricity. In this paper we develop a detailed representation of the US western electricity market to assess the potential impacts of various allocation proposals. Several proposals involve the ``updating'' of allowance allocation, where the allocation is tied to the ongoing output 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, some forms of allocation updating can also inflate allowance prices, thereby limiting the benefits of such schemes to high emissions firms. Thus, the anticipated benefits from allocation updating can be diluted and further distortions introduced into the trading system.
|Date of creation:||02 Jul 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
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.:
- Muller, Adrian & Sterner, Thomas, 2009.
"Output and Abatement Effects of Allocation Readjustment in Permit Trade,"
Working Papers in Economics
413, University of Gothenburg, Department of Economics.
- Sterner, Thomas & Muller, Adrian, 2006. "Output and Abatement Effects of Allocation Readjustment in Permit Trade," Discussion Papers dp-06-49, Resources For the Future.
- Karsten Neuhoff & Kim Keats Martinez & Misato Sato, 2006.
"Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector,"
Taylor & Francis Journals, vol. 6(1), pages 73-91, January.
- Neuhoff, K. & Keats, K. & Sato, M., 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Cambridge Working Papers in Economics 0642, Faculty of Economics, University of Cambridge.
- Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
When requesting a correction, please mention this item's handle: RePEc:isu:genres:31804. 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: (Curtis Balmer)
If references are entirely missing, you can add them using this form.