Issue Brief

Combating Emissions Leakage from Oregon’s Industrial Sector

Nov 29, 2017 | Joshua Linn, Dallas Burtraw

Summary

Oregon lawmakers can use the distribution of emissions allowances under a proposed cap-and-trade program to reduce emissions leakage and achieve broader policy objectives.

Key Findings

  • Oregon can use allowance allocations to balance the benefits of auction revenue with the benefits of minimizing leakage.
  • The state can reduce or eliminate leakage using output-based updated allocation, recognizing that doing so has an opportunity cost because it diverts allowance revenue from other potential uses.
  • We recommend simple allocation rules based on available data.
  • For allocation to be effective at reducing leakage, covered facilities must anticipate that the allocations will be updated based on their production levels. Allocation rules can be updated based on new information as the cap-and-trade program unfolds.