Discussion Paper: State and Fuel-Specific Benchmarks for Greenhouse Gas Performance Standards
The next major aspect of US climate policy will likely be the regulation of existing power plants, and tradable performance standards could form the basis of this framework. Under this framework, emitting sources have a compliance obligation, identified as a benchmark emissions rate, and there is a market where sources can trade emissions based on an emissions rate under/over their benchmark. We examine different approaches to setting benchmark rates across geography and fuel type in a program that enables national trading. We show that, for a given national emissions target, differentiating benchmark rates affects the program’s cost-effectiveness. However, these differences also affect the regional distribution of the program’s electricity price effects and may reduce the variation in these effects. We observe a "knee in the curve," where modest differentiation in benchmark rates could address some distributional concerns at low cost, but substantial differentiation raises the program’s cost precipitously.
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Resources for the Future Discussion Paper 13-37
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