We investigate the cost-effectiveness and distributional effects of a revenue-raising auction, grandfathering, and a generation performance standard as alternative approaches for distributing carbon emission allowances in the electricity sector. We solve a detailed national electricity market model and find the auction is roughly one-half the societal cost of the other approaches. This result holds under a variety of assumptions about the future state of economic regulation and competition in the electricity sector. The differences in the cost of the approaches flow from the effect of each approach on electricity price. Grandfathering is the best for producers but it imposes a substantial cost on consumers. The generation performance standard yields the lowest electricity price but highest natural gas price. The auction does better than the generation performance standard at protecting households and at preserving asset values for producers. It also yields revenues that can help meet other efficiency and distributional goals.
Dallas Burtraw is a Darius Gaskins Senior Fellow at RFF. Burtraw’s current research includes analysis of the distributional and regional consequences of climate policy, the evolution of electricity markets including renewable integration, and the interact
Senior Fellow and Director, Future of Power Initiative
Report — Oct 29, 2020
Building Performance Standards: Lessons from Carbon Policy
This report assesses the various tradeoffs and challenges of designing building performance standards (BPS) in order to facilitate compliance and promote cost-effectiveness.
Press Release — Oct 29, 2020
Bound for the EU, American-Made Biomass Checks the Right Boxes
A first-of-its-kind study published in the journal Scientific Reports on Thursday finds that wood produced in the southeastern United States for the EU’s renewable energy needs has a net positive effect on US forests—but that future industry expansion could warrant more research.
Resources Articles — Oct 22, 2020
Legislative Strategy for Durable Climate Policy
Three RFF scholars sit down together to discuss what kinds of legislative strategies, when deployed, promote durable environmental policy.