Report Highlights Costs and Consumer Burdens from "Cap and Trade" Greenhouse Gas Programs

A new report highlights the problem of overcompensation of electricity producers when a "cap and trade" greenhouse gas allowance program is overlaid on a restructured electricity market which pays all producers the same price. When the cost of allowances is added to the market-clearing price usually set by a fossil fuel plant, all producers are paid that price even when they have no need to buy allowances, thus benefiting nuclear, hydro, wind and other producers.

Unproductive costs represent costs for electricity consumers that provide little if any of these benefits. These unproductive costs will result, in part, from the underlying single clearing-price structure of deregulated electricity markets in the United States, in which an increase in costs for just a few generating plants can lead to an increase in revenues for all generating plant owners. While many analysts consider such “transfer payments” from consumers to producers as unimportant in assessing overall cost to society, they are harmful to consumers and thus to the economy as a whole.

Productive and Unproductive Costs of CO2 Cap-and-Trade: Impacts on Electricity Consumers
and Producers, Synapse Energy Economics, Inc., July 2009.

See also, "Cap and Trade" Market System for CO2 Reduction Likely to Raise New York Electricity Prices, PULP Network, May 20, 2009; CO2 Cap and Trade Programs Inflate Electric Rates in Restructured States, PULP Network, March 13, 2009.