Cap & Trade: Allowance Allocation and Auction Impacts

October 21, 2009
10:59 AM
“Several basic design questions come to mind that I hope we can address in this hearing. First and foremost, we need to have a good understanding of what the appropriate levels of free allocation should be.  Many market-based programs in the past have freely allocated emission permits, but the experience with the first phase of the European Unions emissions trading program has shown us that this is not necessarily the preferred approach with a greenhouse gas trading market.
“We also need to have a better understanding of the uses of free allowances.  For example, many bills before Congress propose to distribute allowances not only to entities that need to comply with the program, but also to advance additional objectives and goals.  That is the same for auction revenue, which is divided among a variety of different purposes.  I hope the witnesses today can help educate us on the value of using allowances for purposes other than complying with the program.
“Over the course of debate on climate change, many have become more and more persuaded that the main priority for allowance allocations and auctions should be to return revenue to ratepayers and consumers.  Studies show that they are the ones who will ultimately see the price signal in the form of increased energy prices.  The question, therefore, iswhat is the best way to achieve that goal?
“I hope today’s hearing will explore some of the answers to these questions.” 
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