Carbon Allowance Auction Design: An Assessment of Options for the U.S.

38 Pages Posted: 17 Sep 2010

See all articles by David McAdams

David McAdams

Duke University - Fuqua School of Business

Giuseppe Lopomo

Fuqua School - Duke University; Duke University - Department of Economics

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group

Brian C. Murray

Duke University

Abstract

Carbon allowance auctions are a component of existing and proposed regional cap-and-trade programs in the U.S. and are also included in recent bills in the U.S. Congress that would establish a national cap-and-trade program in the U.S. to regulate greenhouse gases (“carbon”). We discuss and evaluate the two leading candidates for the auction format for carbon allowance auctions: a uniform-price sealed-bid auction and an ascending-bid dynamic auction, either of which could be augmented with a “price collar” to ensure that the price of allowances is neither too high nor too low. We identify the primary trade-offs between these auction formats as applied to carbon allowance auctions and suggest auction design choices that address potential concerns about efficiency losses from collusion and other factors. We conclude that a uniform-price sealed-bid auction is more appropriate for the sale of carbon allowances than the other leading choices, in part because it offers increased robustness to collusion without significant sacrifice in terms of price discovery.

Suggested Citation

McAdams, David and Lopomo, Giuseppe and Marx, Leslie M. and Murray, Brian C., Carbon Allowance Auction Design: An Assessment of Options for the U.S.. Economic Research Initiatives at Duke Working Paper No. 62. Available at SSRN: https://ssrn.com/abstract=1677606 or http://dx.doi.org/10.2139/ssrn.1677606

David McAdams (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Giuseppe Lopomo

Fuqua School - Duke University ( email )

Box 90097
Durham, NC 27708-0097
United States
(919) 660-7820 (Phone)
(919) 660-7971 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

Brian C. Murray

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
84
Abstract Views
1,009
rank
292,554
PlumX Metrics