Abby L. Harvey
GHG Daily
1/12/2016
States choosing to pursue a market-based compliance system under the Environmental Protection Agency’s carbon emissions standards for existing coal-fired power plants still have many decisions to make, a panel of experts speaking at the Bipartisan Policy Center yesterday morning said.
The regulation in question, the Clean Power Plan, sets state-specific emissions reduction goals and requires states to meet those targets by whatever means leaders find best. States may opt to implement a market-based system by which a certain number of allowances for carbon emissions are distributed to emitters.
“The introduction of a constraint on CO2 emissions makes them scarce. … Economic value comes from scarcity,” Dallas Burtraw, a senior fellow at Resources for the Future, said during the event. “This is a living example in our time of the creation of a new source of economic value because the opportunity to emit CO2 emissions is now going to be scarce. That means that we can put a price on it and try to achieve efficient outcomes.”
From the basic cap-and-trade model states have several decisions to make. For example, they must decide if allowances will be given to emitters or auctioned off. Once revenue is collected, they must decide what to do with it. Some may choose to give it to electricity ratepayers to offset the higher cost of electricity while other may decide to invest the revenue in low-carbon energy development.
The good news for states choosing the market-based route, according to Bruce Phillips, director of the NorthBridge Group, is that guidance is available. “For each of these potential kinds of policy priorities, there are models that states can look at. We don’t need to re-invent the wheel when it comes to allowance allocation processes,” Phillips said.
The Regional Greenhouse Gas Initiative, a multistate cap-and-trade program operating in the Northeast, represents a good model for states placing a priority on low-carbon energy development, as a significant portion of the funds received under that program are reinvested in energy efficiency efforts.
Under the RGGI program, allowances are auctioned off, though there are also several models under which they are allocated to emitters for free. Speaking for electric utility Dynegy, Bruce Wilcoxon suggested that an auction is a better way to go about allocating allowances. “We feel that that’s the best way to truly discover an accurate price for CO2. We think it can be done in a way that doesn’t necessarily significantly impact customers immediately,” said Wilcoxon, the company’s environmental affairs director.
An auction system may also be a less politically charged option in some states, such as those where electricity rates are regulated by the state, Wilcoxon said. “Any decision to allocate allowances for free, especially in competitive markets, but also I think in rate regulating states, has the potential to kind of give people the perception that winners and loser are being chosen,” he said.
