Discussion Paper

Climate Policy’s Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade

Mar 31, 2010 | Joshua Blonz, Dallas Burtraw, Margaret A. Walls

Abstract

Uncertainty is a fundamental characteristic of climate change. This paper focuses on uncertainty that is introduced in the implementation of policy, especially as it affects the level and distribution of theburden on households that results from the allocation of emissions allowances. We examine the Waxman–Markey bill (H.R. 2454), with bookend scenarios labeled optimistic and pessimistic. The scenarios vary outcomes associated with allocations to local distribution companies, investments in electricity energy efficiency and technology development. We introduce a third scenario that allocates asubstantial portion of allowance value directly to households. We find the average consumer surplus loss per household in 2016 in the optimistic scenario to be $136 and the allowance price is as low as $13.20 per ton. In the pessimistic scenario, the consumer surplus loss rises to $413, with an allowance price of $23.43 per ton. Allocation of allowance value directly back to households provides an intermediate, but more certain, result.