Consignment Auctions of Free Emissions Allowances under EPA’s Clean Power Plan

Dallas Burtraw and Kristen McCormack

RFF Working Paper Series from Resources for the Future

Abstract: The initial distribution of emissions allowances is usually thought to be independent of the emissions outcome, but 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 recognition of opportunity costs and innovation. Concerns about fairness may result from lack of access to allowances for some entities and lack of transparency with respect to transfers of substantial value in the program. We explore the role of consignment auctions in mitigating these concerns. These revenue-neutral auctions return revenue to the original allowance holders, whose compliance obligations can be met by reacquiring allowances through purchase. Consignment auctions have minimal administrative costs and do not necessarily involve government. Experience indicates that they can play an important role in a new market. EPA and states could consider consignment auctions in planning for the Clean Power Plan.

Keywords: Climate Change; Clean Air Act; Clean Power Plan; Emissions Markets; Cap and Trade; Allocation; Environmental Markets (search for similar items in EconPapers)
JEL-codes: D23 H44 Q53 (search for similar items in EconPapers)
Date: 2016-06-02
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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