Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California

45 Pages Posted: 16 Feb 2010

See all articles by Karen L. Palmer

Karen L. Palmer

Resources for the Future

Dallas Burtraw

Resources for the Future

Anthony C. Paul

Resources for the Future

Date Written: October 7, 2009

Abstract

The regulation of greenhouse gas emissions from the electricity sector within a cap-and-trade system poses significant policy questions about how to allocate tradable emission allowances. Allocation conveys tremendous value and can have efficiency consequences. This research uses simulation modeling for the electricity sector to examine different approaches to allocation under a cap-and-trade program in California. The decision affects prices and other aspects of the electricity sector, as well as implications for the overall cost of climate policy. An important issue is the opportunity for emission reductions in California to be offset by emission increases in neighboring regions that supply electricity to the state. The amount of emission leakage (i.e. an increase in CO2 emissions outside of California as a result of the program) varies with the regulatory design of the program.

Keywords: cap-and-trade, electricity generation, electricity sector, emissions, regulation, governance, allocation, California

JEL Classification: Q2, Q25, Q4, L94

Suggested Citation

Palmer, Karen and Burtraw, Dallas and Paul, Anthony C., Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California (October 7, 2009). Available at SSRN: https://ssrn.com/abstract=1552126 or http://dx.doi.org/10.2139/ssrn.1552126

Karen Palmer (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Dallas Burtraw

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5087 (Phone)

Anthony C. Paul

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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