Productive and Unproductive Costs of Cap-and-Trade: Impacts on Electricity Consumers and Producers


Synapse modeled the impacts of a range of cap-and-trade allowance allocation scenarios on consumer and generator welfare in regulated and deregulated electricity markets in the United States. The analysis, which represents the early years of a national cap-and-trade program before generation changes or load reductions can be implemented, is unique in its treatment of economic impacts at the generating plant level, and in its focus on consumer impacts at the state and regional levels. The results indicated that cap-and-trade regulation will result in consumer-funded windfall profits for certain generators in deregulated electricity markets, and that any free allowance allocation to merchant generators will increase these windfall profits and the cost to consumers. Results are presented at the RTO and state levels to highlight regional differences in these impacts.

Completed August 2009