Oregon's Unique Cap-and-Trade Plan: Free Allowances for Utilities, Auctions for Most
Oregon is set to introduce an economy-wide cap-and-trade program for carbon dioxide (CO2), with a unique approach to emissions allowance allocation. The state's legislation aims to avoid windfall profits by giving away allowances for free to regulated electric and natural gas utilities.
Oregon's plan differs from the Regional Greenhouse Gas Initiative (RGGI) and most EU states, which typically auction the majority of allowances. The state's approach ensures that firms still have a financial incentive to reduce emissions, even with free allocation.
The legislation proposes to auction most emissions allowances, but also give some away for free. This is particularly true for electric and natural gas utilities, and businesses facing unfair competition. Transparency in allocation is key to assess the program's distributional impacts.
Historically, many cap-and-trade programs have distributed allowances for free, but this can lead to windfall profits in competitive markets. Oregon is taking steps to avoid this, with regulated utilities' prices being controlled.
Oregon's cap-and-trade legislation is designed to protect consumers and businesses while encouraging emissions reduction. By giving away allowances for free to certain utilities and businesses, the state aims to prevent windfall profits and maintain a level playing field. The success of this approach will depend on careful calibration and transparency in the allocation process.
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