Simple Rules for Targeting CO2 Allowance Allocations to Compensate Firms

Karen Palmer, Dallas Butraw () and Danny Kahn ()
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Dallas Butraw: Resources for the Future
Danny Kahn: Resources for the Future
Authors registered in the RePEc Author Service: Dallas Burtraw

RFF Working Paper Series from Resources for the Future

Abstract: Policies to cap emissions of carbon dioxide (CO2), such as the recently announced agreement among seven northeastern states, are expected to have important effects on the electricity industry and on the market value of firms that own electricity generation assets. The economics literature finds large efficiency advantages for initial distribution of tradable emissions allowances through an auction so as to direct revenues to tax relief or other public investments. However, an auction raises the costs for the regulated firms. This paper identifies rules for an initial distribution that satisfy a compensation goal for firms that is achieved through free distribution of a portion of the allowances, while maximizing the value of allowances that can be directed to public purposes. The paper employs a detailed simulation model to calculate numerical results for the market value of generation assets under the CO2 cap-and-trade program in the northeastern United States.

Keywords: emissions trading; allowance allocations; electricity; air pollution; auction; grandfathering; 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: 2006-06-06
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Journal Article: Simple rules for targeting CO 2 allowance allocations to compensate firms (2006)
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