Grantee Research Project Results
2001 Progress Report: Efficiency and Distributional Consequences of the Allocation of Tradable Emission Allowances
EPA Grant Number: R828628Title: Efficiency and Distributional Consequences of the Allocation of Tradable Emission Allowances
Investigators: Burtraw, Dallas , Pizer, Billy , Fischer, Carolyn , Carlson, Curtis , Palmer, Karen
Institution: Resources for the Future , National Oceanic and Atmospheric Administration
Current Institution: Resources for the Future
EPA Project Officer: Chung, Serena
Project Period: October 1, 2000 through September 30, 2002 (Extended to September 30, 2003)
Project Period Covered by this Report: October 1, 2000 through September 30, 2001
Project Amount: $251,000
RFA: Market Mechanisms and Incentives for Environmental Management (2000) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
This research project is organized around three questions:
(1) What effect does the mechanism for allocating emission permits have on cost, distributional consequences, and environmental performance of the environmental regulation? We will investigate this question in a numerical framework using a detailed model of the electricity industry to simulate NOx emission allowance trading in the eastern U.S. We also will use a general equilibrium model with international trade to study the effects of domestic, multi-sector trading of CO2 pollution permits.
(2) Do strategic incentives stemming from inter-jurisdictional relations affect the choice of allocation mechanisms? Inter-jurisdictional competition can be an important factor in the determination of a variety of state policies, and we expect the same to be true with respect to allocations. We will consider the patchwork of state-level environmental and electricity regulation within the simulation model to study the allocation of NOx emission allowances in the United States. We will search for optimal strategies from the perspective of individual states and compare these with the federal perspective.
(3) How does the performance of tradable permit allocations change in a dynamic context? Time can play an important role that is omitted in static analysis. Over time, regulatory standards may evolve, leading to unanticipated changes in programs. Also, firms have incentives to innovate, enter, and exit an industry. These dynamic actions will affect the relative performance of different allocation mechanisms.
Progress Summary:
In the first year of this research project, the principal investigators have worked separately on two major initiatives. One is an analytical investigation of the efficiency of output-based allocations of emission allowances. This work has been tested in general computable equilibrium models with international trade, and has led to several presentations and two manuscripts; a third manuscript is in preparation.
The second initiative focuses on the efficiency and equity implications in the context of a U.S. domestic permit trading program. An example would be to control NOx or CO2 with special study of the electricity sector. This work has led to two manuscripts and one shorter educational piece, and has been the focus of approximately 40 presentations and briefings for the advocacy community, industry, agencies, legislative staff, and academics. It also has generated interest at both the state and federal levels.
Viewed together, this research establishes a seminal body of literature to guide policymakers on approaches to the allocation of emission allowances. The research findings are of unusual magnitude, suggesting tremendous efficiency and equity consequences. Furthermore, normative guidance that has attracted the interest of a diverse community of interest groups has been achieved.
Future Activities:
The second year of the project will extend the ambitious accomplishments of the first year, and also initiate a second effort dedicated to combining analytical results with empirical and simulation modeling exercises to examine strategic issues in the allocation of permits. We expect to complete the development of analytical models by preparing the following paper: Fischer, Carolyn. Output-Based Rebating of Environmental Policy Revenues and Imperfect Competition (2002).
The following two papers also will be completed: (1) Approaches to the Distribution of NOx Allowances: Efficiency and Fairness, and (2) Formulas for Fairness: Compensation Through Allowance Allocations. In addition, we plan to write a paper on strategic issues. That manuscript is not yet in preparation.
Journal Articles on this Report : 2 Displayed | Download in RIS Format
| Other project views: | All 75 publications | 2 publications in selected types | All 2 journal articles |
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Burtraw D. Carbon emission trading costs and allowance allocations:evaluating the options. Resources, Fall, No. 145, 2001, pp. 13-16. |
R828628 (2001) R828628 (Final) |
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Palmer K, Paul A, Bharvirkar R. The effect on asset values of the allocation of carbon dioxide emission allowances. The Electricity Journal 2002;15(5):51-62. |
R828628 (2001) R828628 (Final) |
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Supplemental Keywords:
air, global climate, nitrogen oxides, sulfates, acid rain, public policy, decision making, cost benefit, public good, compensation, conservation, modeling, analytical, northeast, electricity sector., RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Chemistry, Economics, Market mechanisms, Social Science, electricity generation plants, equilibrium analysis, auctioning permits, decision making, air pollution, cost benefit, socioeconomics, cap and trade systems, environmental Compliance, emissions trading, pollution fees, tradable pollution permits, public policy, allowance allocation, cost effective, pollution allowance trading, econometricsRelevant Websites:
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.