Implications of Carbon Cap-and-Trade for Electricity Rate Design, with Examples from Florida

Thu Oct 07 16:24:38 EDT 2010
By Dr. Hethie Parmesano with Theodore J. Kury, Director of Energy Studies at the University of Florida

The price of emissions allowances will affect the structure of the utility's costs, which has implications for rate design and load management programs. Under a cap-and-trade program to control carbon dioxide emissions, electric utilities (and other electricity generators and emitters of carbon covered by the legislation) would have to obtain permits (allowances) for the carbon emitted in the process of producing goods and services. Depending on the design of the program, how allowances are allocated or auctioned, what happens to the auction revenue, the total allowances available each year, and what actions are taken to reduce emissions, utility total revenue requirements will be affected. This paper, by NERA Special Consultant Dr. Hethie Parmesano and Theodore J. Kury, Director of Energy Studies at the University of Florida, addresses these implications and provides insight into how utilities' marginal costs of energy might change and the potential effects on policies whose goal is to influence consumer behavior.