Design, Performance and Interstate Collaboration: Insights from the Regional Greenhouse Gas Initiative

Abstract

Given pressure to act on climate change, nations now use market-based approaches for reducing greenhouse gas (GHG) emissions. Cap-and-trade systems for reducing GHG are strongly debated. Policy designers must allocate emissions allowances effectively to ensure successful cap-and-trade systems; for example, some argue that the European Union's Emissions Trading Scheme has underperformed due to poor allowance distribution. We apply insights from auction design theory to analyse the performance of the Regional Greenhouse Gas Initiative (RGGI) emissions allowance auctions, and show how RGGI could serve as a model for a national cap-and-trade system.

Keywords:

• RGGI
• auction theory
• greenhouse gases
• cap and trade
• climate change

Notes

The Byrd–Hagel Resolution (S. Res. 98, 105^th Congress) expressed the sense of the Senate about the conditions under which the United States should be a signatory to the Kyoto Protocol; in essence, the resolution signalled to the administration that the US should be a signatory. For more information, see http://thomas.loc.gov/cgi-bin/bdquery/z?d105:S.RES.98:.

This section is based on information from the RGGI website and specific state government websites that are listed in the references section. Information from other sources is cited.

http://www.dec.ny.gov/energy/rggi.html (accessed 2008).

See the large literature on capture theory and the role of corporations in regulation. See Peltzman (1989).

Raymond (2003: 14) defines “licensed property” as “a private legal right that provides a significant degree of security and exclusivity to resource users but remains unprotected from future government adjustment or cancellation without compensation”.

See http://www.gao.gov/new.items/d09151.pdf (accessed 1 August 2012), pp. 17, 34.

The Edison Electric Institute (EEI) “is the association of U.S. shareholder-owned electric companies”, whose members “serve 95% of the ultimate customers in the shareholder-owned segment of the industry, and represent approximately 70% of the U.S. electric power industry” (EEI 2007).

http://www.rggi.org/docs/20080317auction_design.pdf (accessed 14 March 2008).

http://www.rggi.org/docs/Auction_2_Release_Final_08_12_19c.pdf (accessed 23 December 2008), p. 57.

http://www.rggi.org/docs/Auction_2_Release_Final_08_12_19c.pdf (accessed 23 December 2008). ICF International is a private consulting firm specializing in climate change modelling.

The participating states included Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont.

http://www.rggi.org/about.htm (accessed 14 March 2008).

See http://www.azdeq.gov/function/news/2011/download/111611_2.pdf (accessed 1 August 2012).