Incorporating Wind Generation in Cap and Trade Programs
Cap and trade programs are increasingly being used to reduce emissions from electricity generation in the United States. While cap and trade programs primarily target emitting generators, some states have included renewable generators to provide an incentive for non-emitting generation, to achieve emissions reductions in non-capped pollutants, and for their local economic benefits.
This report explores state policies that have included wind in cap and trade programs, why there has been little participation among wind and other renewable energy generators in cap and trade programs to date, the mechanisms by which wind generators could benefit from participation, and how wind generation can most effectively be included in these programs. The report covers methods for including wind generators in emission reduction programs that are in use today or under active consideration in current state regulatory decisions, including: set-asides for renewable energy and output-based allocation of allowances to renewable energy generators. While the report provides specific regulatory options for allocating allowances to renewable generators under the Clean Air Interstate Rule (CAIR), the overall findings of this report are generally applicable to other cap and trade programs as well.
To date, wind generator participation in cap and trade programs has proven to be highly sensitive to transaction costs and regulatory issues. Programs to include renewable generation in cap and trade will benefit from ongoing evaluation of "best practices" to improve their design and implementation.
This information was last updated on July 25, 2006