This paper draws on previous research on environmental adder policies and the social cost of carbon to offer lessons for the design of electricity sector carbon adder policies.
- Historically, adders have been included as “shadow” prices in electricity-sector planning but revenue was not collected.
- Current proposals would charge the adder price and recycle the revenue. The use of revenue shapes the policies’ outcomes.
- Adders in the electricity sector improve incentives but are not a substitute for more comprehensive economy-wide climate policies.