Allowance Allocation Options under the Clean Power Plan Proposed Mass-Based Model Rule

Abstract

The Clean Power Plan is a major element of the United States’ strategy to combat climate change. The Clean Power Plan addresses carbon emissions from existing power plants by setting emissions limits for each state. Under the Clean Power Plan, states are supposed to develop their own plans to meet the goal that Environmental Protection Agency (EPA) has set. When EPA published the final version of the Clean Power Plan, the Agency also proposed model rules for the states. These model rules establish a trading-ready scheme that states can adapt to their individual policy priorities. The EPA published a mass- and rate-based model rule, and this paper focuses on the mass-based rule because it raises the question of allowance allocation while a rate-based rule would not. This paper explores the policy priorities that states may want to pursue through their Clean Power Plan compliance efforts. It also reviews the allowance allocation choices that states with mass-based trading plans will have to make and how the states may incorporate their policy goals into those decisions.