Carbon allowance auction design: An assessment of options for the United States

Published

Journal Article

Carbon allowance auctions are a component of existing and proposed regional cap-and-trade programs in the United States and are also included in recent proposed bills in the U.S. Congress that would establish a national cap-and-trade program to regulate greenhouse gases ("carbon"). We discuss and evaluate the two leading candidates for auction format: a uniform-price sealed-bid auction and an ascending-bid dynamic auction, either of which could be augmented with a "price collar" to ensure that the price of allowances is neither too high nor too low. We identify the primary trade-offs between these two formats as applied to carbon allowance auctions and suggest additional auction design features that address potential concerns about efficiency losses from collusion and other factors. We conclude that, based on currently available evidence, a uniform-price sealed-bid auction is more appropriate for the sale of carbon allowances than the other leading auction formats, in part because it offers increased robustness to collusion without significant sacrifice of price discovery. © The Author 2011. Published by Oxford University Press on behalf of the Association of Environmental and Resource Economists. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Lopomo, G; Marx, LM; McAdams, D; Murray, B

Published Date

  • July 1, 2011

Published In

Volume / Issue

  • 5 / 1

Start / End Page

  • 25 - 43

Electronic International Standard Serial Number (EISSN)

  • 1750-6824

International Standard Serial Number (ISSN)

  • 1750-6816

Digital Object Identifier (DOI)

  • 10.1093/reep/req024

Citation Source

  • Scopus