Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context

Benjamin Hobbs (), James Bushnell and Frank A. Wolak

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In electricity, “downstream” CO2 regulation requires retail suppliers to buy energy from a mix of sources so that their weighted emissions satisfy a standard. It has been argued that such “load-based” regulation would solve emissions leakage, cost consumers less, and provide more incentive for energy efficiency than traditional source-based cap-andtrade programs. Because pure load-based trading complicates spot power markets, variants (GEAC and CO2RC) that separate emissions attributes from energy have been proposed. When all energy producers and consumers come under such a system, these load-based programs are equivalent to source-based trading in which emissions allowances are allocated by various rules, and have no necessary cost advantage. The GEAC and CO2RC systems are equivalent to giving allowances free to generators, and requiring consumers either to subsidize generation or buy back excess allowances, respectively. As avoided energy costs under source-based and pure load-based trading are equal, the latter provides no additional incentive for energy efficiency. The speculative benefits of load-based systems are unjustified in light of their additional administrative complexity and cost, the threat that they pose to the competitiveness and efficiency of electricity spot markets, and the complications that would arise when transition to a federal cap-and-trade system occurs.

Keywords: Emissions trading; greenhouse gas regulation; electricity market models (search for similar items in EconPapers)
JEL-codes: Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2010-03-15
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Citations: View citations in EconPapers (7)

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Journal Article: Upstream vs. downstream CO2 trading: A comparison for the electricity context (2010)
Working Paper: Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context (2010)
Working Paper: Upstream vs. Downstream CO2 Trading: A Comparison for the Electricity Context (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1018

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