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Consignment auctions of free emissions allowances

Dallas Burtraw and Kristen McCormack

Energy Policy, 2017, vol. 107, issue C, 337-344

Abstract: While the initial distribution of emissions allowances is usually thought to be independent of the emissions outcome, free allocation can affect the efficiency and fairness of allowance trading. Inefficiency may result from thin allowance markets, poor price discovery, and regulatory or organizational complexities that hinder the recognition of opportunity costs. Concerns about fairness may result from intransparency in the process of transferring substantial allowance value. We explore the role of consignment auctions in mitigating these concerns. These revenue-neutral auctions return the financial value of allowances to their original holders while revealing prices and directing allowances to their highest-valued use. They also can be used to support a minimum price when allowances are freely distributed, which may facilitate program linkage. Consignment auctions have minimal administrative costs and do not necessarily involve government. Experience indicates that they can play an important role, especially in new markets.

Keywords: Climate change; Clean Air Act; Clean Power Plan; Emissions markets; Cap and trade; Allocation (search for similar items in EconPapers)
JEL-codes: H44 Q53 D23 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:enepol:v:107:y:2017:i:c:p:337-344