Climate Policy's Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade

Joshua Blonz 1 , 1 , Dallas Burtraw 2 , 2  and Margaret A Walls 3 , 3
  • 1 Resources for the Future, blonz@rff.org
  • 2 Resources for the Future, burtraw@rff.org
  • 3 Resources for the Future, walls@rff.org

Abstract

The design and implementation of the allocation of CO2 emissions allowances in recent bills in the U.S. Congress introduces a new source of uncertainty to the climate policy debate. We examine the Waxman-Markey bill (H.R. 2454) with scenarios that vary outcomes associated with allocations to electricity local distribution companies, investments in energy efficiency and technology development. The average net household burden in 2016 ranges from $133, with a CO2 allowance price of $13.19, to $418, with an allowance price of $23.41. The uncertainty about average burdens does not carry over to the distribution of those burdens; both scenarios impose the greatest burden as a percentage of income on middle-income households. A third scenario that allocates a substantial portion of allowance value as lump-sum payments imposes an average net household burden of $206, with a price of $17.37 and with highly progressive distributional impacts.

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The B.E. Journal of Economic Analysis & Policy (BEJEAP) is an international forum for scholarship that employs microeconomics to analyze issues in business, consumer behavior and public policy. Topics include the interaction of firms, the functioning of markets, the effects of domestic and international policy and the design of organizations and institutions.

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