White paper first page

MPSC White Paper: Key Considerations for Making Allowance Distribution Decisions

Introduction

States that opt to pursue a mass-based trading approach to achieve federal Clean Power Plan (CPP) requirements will have the opportunity to decide how to distribute allowances.1 The total value of the allowances to be distributed is likely to be significant, making allowance distribution a key decision for states. The Midcontinent Power Sector Collaborative presents this white paper to assist states in making allowance distribution decisions.

The goal of this white paper is to inform discussions around allowance distribution by evaluating different ways to think about and approach the challenge. As detailed in the paper, a key issue in evaluating options for allowance distribution is whether a state regulates the cost of electricity generation, including the cost of allowances needed to generate electricity.2 No attempt was made to agree on a specific allowance distribution approach for any particular state. Instead, the paper seeks to help state decision makers understand the issues and identify potential advantages and disadvantages of different options.

In the white paper, we begin with a discussion of the possible goals states should consider when making allowance distribution decisions. We then detail the key economic, regulatory and ownership factors in play. Next, we analyze the various options for allowance distribution, identifying the potential advantages and disadvantages of each approach. We conclude with the key takeaways on which Collaborative participants agree. 

Click here to download the full paper. Click here to learn more about the Midwestern Power Sector Collaborative.

 

 

[1] Under the Clean Power Plan states have a number of options for meeting federal requirements, including both mass-based and rate-based trading. 

[2] As discussed in the paper, vertically integrated utilities are regulated, while cooperatives and municipal power companies are generally not-for-profit entities. Merchant generators, however, are not subject to economic regulation no matter where they are located.