The introduction of a price on carbon dioxide will have important effects on the U.S. economy, and especially important effects on the electricity sector, which currently accounts for about 40 percent of carbon dioxide emissions. This paper examines alternative approaches to the distribution of...

We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, while permits are assigned for free under grandfathering. In theory, trading in the spot...

The regulation of greenhouse gas emissions from the electricity sector within a cap-and-trade system poses significant policy questions about how to allocate tradable emission allowances. Allocation conveys tremendous value and can have efficiency consequences. This research uses simulation...

The U.S. Clean Air Act Amendments of 1990 initiated the first large experiment in the use of market-based regulation to control environmental problems with the introduction of an emissions trading program for sulfur dioxide emissions. Later that decade the second large trading program began for...

We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, while permits are assigned for free under grandfathering. In theory, trading in the spot...

Environmental markets have several institutional features that provide a new context for the use of auctions and which have not been studied previously. This paper reports on laboratory experiments testing three auction forms: uniform and discriminatory price sealed bid auctions and an ascending...

This paper outlines recent developments in U.S. climate policies. Although the United States does not participate in the Kyoto Mechanism, a number of climate policies are being implemented at state level as well as at the federal level. First, we report and compare the federal cap and trade...

California's Global Warming Solutions Act (Assembly Bill 32) requires the state to reduce aggregate greenhouse gas emissions to 1990 levels by 2020. One of the challenges California faces is how the state should regulate the electricity sector. About 80 percent of the state's electricity...

Policies to cap emissions of carbon dioxide (CO2) in the U.S. economy could pose significant costs on the electricity sector, which contributes roughly 40 percent of total U.S. CO2 emissions. Whether producers or consumers bear the cost of this regulation depends on whether generators are...

The introduction of a price on carbon dioxide is expected to be more efficient than prescriptive regulation. It also instantiates substantial economic value. Initially programs allocated this value to incumbent firms (grandfathering), but the growing movement toward auctioning or emissions fees...