Under the Clean Power Plan, different utilities and power producers are likely to be in different positions: some will benefit from the rule, and others will face high compliance costs. This cost distribution may lead to monetary transfers—redistributions of money, income, or value from one party to another that are not necessarily driven by a change in the corresponding cost of production—among utilities and other power producers, between generators and consumers, and among consumers of different utilities. The regulatory system for each state’s electric utilities and the strength of regional electricity markets will play a major role in determining how the cost distribution and potential transfers play out, especially for ratepayers. This policy brief explores the cost distribution impacts for electricity producers of rate-based and mass-based compliance, respectively. It also considers how wholesale markets may mediate these producer impacts of rate- and mass-based compliance. It then turns to the implications for electricity consumers under various market and regulatory structures. Finally, it identifies opportunities to address distributional impacts if states wish to do so. It finds that states adopting a mass-based compliance approach can use allowance allocation to largely control monetary transfers within a state. States adopting a rate-based compliance approach lack this direct control mechanism.
Nicholas Institute for Environmental Policy Solutions