Trade-Offs in Allocating Allowances for CO2 Emission
The U.S. Congressional Budget Office has released a brief examines how policymakers’ decisions about allocating CO2 emission allowances would affect the total cost of a cap-and-trade policy to the U.S. economy, as well as the distribution of that cost among households in their various roles as workers, consumers, and investors. Under a cap-and-trade program for carbon dioxide emissions, policymakers would set a limit on the total amount of CO2 that could be emitted in a given period—the “cap”—and would issue rights, or allowances, corresponding to that level of emissions. Entities that were subject to the cap (such as coal mines, oil importers, refineries, or electric utilities, depending on the proposal) would be required to hold allowances for their CO2 emissions. After the allowances were initially distributed, entities would be free to buy and sell them—the “trade” part of the program—and the price of allowances would adjust to reflect the cost of meeting the emission cap.
This Summary Last Modified On: 4/22/2011