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|
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- Sterner, Thomas & Muller, Adrian, 2006.
"Output and Abatement Effects of Allocation Readjustment in Permit Trade,"
dp-06-49, Resources For the Future.
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Cambridge Working Papers in Economics
0642, Faculty of Economics, University of Cambridge.
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