CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors

Dallas Burtraw, Karen Palmer and Daniel Kahn ()
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Daniel Kahn: Resources for the Future

RFF Working Paper Series from Resources for the Future

Abstract: The Regional Greenhouse Gas Initiative (RGGI) is an effort by nine Northeast and Mid-Atlantic states to develop a regional, mandatory, market-based cap-and-trade program to reduce greenhouse gas (GHG) emissions from the electricity sector. The initiative is expected to lead to an increase in the price of electricity in the RGGI region and beyond. The implications of these changes for the value of electricity-generating assets and the market value of the firms that own them depends on the initial allocation of carbon dioxide allowances, the composition of generating assets owned by the firm, and the locations of those assets. Changes in asset values inside the RGGI region may be positive or negative, whereas changes outside of the RGGI region are almost always positive but nonetheless vary greatly. Viewing changes at the firm level aggregates and moderates both positive and negative effects on market value compared with what would be observed by looking at changes at individual facilities. Nonetheless, a particular firm’s portfolio of assets is unlikely to reflect the overall composition of assets in the industry as a whole, and some firms are likely to do substantially better or worse than the industry average.

Keywords: emissions trading; allowance allocations; electricity; air pollution; auction; grandfathering; generation-performance standard; output-based allocation; cost-effectiveness; greenhouse gases; climate change; global warming; carbon dioxide; asset value (search for similar items in EconPapers)
JEL-codes: L94 Q2 Q25 Q4 (search for similar items in EconPapers)
Date: 2005-12-13
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors (2006)
Working Paper: CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors (2005)
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