Updating Allowance Allocations in Cap-and-Trade: Evidence from the NOx Budget Program

Ian Lange and Peter Maniloff

No 2017-01, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: The level and distribution of the costs of tradable allowance schemes are important determinants of whether the regulation is ultimately enacted. Theoretical and simulation models have shown that updating allowance allocations based on firm emissions or output can improve the efficiency of the scheme by acting as a production subsidy. Using the U.S. NOx Budget Program (NBP) as a case study, this analysis tests whether power plants in states which chose an updating allocation increase their electricity production relative to plants in states that chose a fixed allocation. Results find that updating allocations led to a 5 percentage point increase in capacity factors for natural gas combined cycle generators and no effect or a modest decrease for coal generators. These findings imply that an updating allocations confers a modest but meaningful subsidy to production relative to a fixed allocation and that firm responses are heterogeneous based on production technology and market conditions.

Keywords: cap-and-trade; electricity; climate change (search for similar items in EconPapers)
JEL-codes: L94 Q48 Q58 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2017-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://econbus-papers.mines.edu/working-papers/wp201701.pdf First version, 2017 (application/pdf)

Related works:
Journal Article: Updating allowance allocations in cap-and-trade: Evidence from the NOx Budget Program (2021)
Working Paper: Updating Allowance Allocations in Cap-and-Trade: Evidence from the NOx Budget Program (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:mns:wpaper:wp201701

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