Allocation and leakage in regional cap-and-trade markets for CO2

James Bushnell and Yihsu Chen

Resource and Energy Economics, 2012, vol. 34, issue 4, 647-668

Abstract: The allocation or assignment of the emissions permits is one of the most contentious elements of the design of cap-and-trade systems In this paper we develop a detailed representation of the U.S. western electricity market to assess the potential impacts of various permit allocation proposals. Several proposals involve the “updating” of allocations, where the allocation is tied to the ongoing output, or input use, 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, allocation updating can also inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms.

Keywords: Allowance trading; Leakage; Carbon regulation; Electricity markets (search for similar items in EconPapers)
JEL-codes: Q48 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (40)

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Related works:
Working Paper: Allocation and Leakage in Regional Cap-And-Trade Markets for CO2 (2010)
Working Paper: Allocation and leakage in regional cap-and-trade markets for CO2 (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:34:y:2012:i:4:p:647-668

DOI: 10.1016/j.reseneeco.2012.05.008

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