Cap-and-Trade Climate Policies with Price-Regulated Industries: How Costly are Free Allowances?
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MITJPSPGC_Rpt224.pdf
Description
Main Article
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1.4 MB
Format
Adobe PDF
Checksum (MD5)
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Author(s)
Bruno, Lanz, 1980-
Rausch, Sebastian
Date Issued
July 10, 2012
Publisher
MIT Joint Program on the Science and Policy of Global Change
Citation
Report 224
Series/Report no.
Joint Program Report Series;224
Abstract
We examine the impacts of alternative cap-and-trade allowance allocation designs in a model of the
U.S. economy where price-regulated electric utilities generate 30% of total CO2 emissions. Our empirical
model embeds a generator-level description of electricity production—comprising all 16,891 electricity
generators in the contiguous U.S.—in a multi-region multi-sector general equilibrium framework that
features regulated monopolies and imperfectly competitive wholesale electricity markets. The model recognizes
the considerable heterogeneity among households incorporating all 15,588 households from the
Consumer and Expenditure Survey as individual agents in the model. Depending on the stringency of the
policy, we find that distributing emission permits freely to regulated utilities increases welfare cost by 40-
80% relative to an auction if electricity rates do not reflect the opportunity costs of permits. Despite an
implicit subsidy to electricity prices, efficiency costs are disproportionately borne by households in the
lowest income deciles.
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http://globalchange.mit.edu/research/publications/reports/all
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