CONSIGNMENT AUCTIONING OF CARBON ALLOWANCES IN CAP-AND-TRADE PROGRAM DESIGN

This research note examines 'consignment auctioning,' a hybrid carbon allowance distribution method used in California's emission trading system (ETS) that combines elements of free allocation and auctioning. The authors propose this model as a potential solution for China's national ETS to introduce auctioning while mitigating economic shocks to covered entities and bypassing institutional barriers regarding the handling of government revenue.

• Consignment auctioning functions as a three-step hybrid process: the government first provides free allowances to companies, which the companies then 'consign' back to the government for auction; finally, the resulting auction revenue is distributed back to the companies based on their contribution.
• The consignment approach can bypass legal and institutional hurdles in China because auction proceeds are collected on behalf of entities rather than as 'government revenue,' meaning funds do not need to flow through the Ministry of Finance's 'general budget' account.
• In California, consignment auctioning allowed the state to maintain a carbon price signal for consumers while protecting them from high costs. This was achieved by allowing retail electricity prices to rise to reflect carbon costs, while using 70 percent of consignment funds for 'Climate Credits'—fixed rebates for residential and small business customers.
• Auctioning is presented as economically superior to free allocation because it enables faster market price discovery, facilitates the implementation of price floors and ceilings, and avoids subsidies for carbon emission production.
• Output-based free allocation (OBA) is identified as the preferred method for protecting 'energy-intensive, trade-exposed' firms from international competitiveness losses, as it rewards production levels rather than historical emission levels.
• Consignment auctioning increases the total volume of allowances available at auction compared to a pure free allocation model, which reduces the potential for price manipulation and improves the quality of the market price signal.

APA

BUSCH, C., HARVEY, H., MIN, H., & SHUANG, L. (2018). CONSIGNMENT AUCTIONING OF CARBON ALLOWANCES IN CAP-AND-TRADE PROGRAM DESIGN. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Consignment-Auctioning-of-Carbon-Allowances-in-Cap-and-Trade-Program-Design.pdf

Chicago

BUSCH, CHRIS, HAL HARVEY, HU MIN, and LIU SHUANG. CONSIGNMENT AUCTIONING OF CARBON ALLOWANCES IN CAP-AND-TRADE PROGRAM DESIGN. Energy Innovation, 2018. https://energyinnovation.org/wp-content/uploads/Consignment-Auctioning-of-Carbon-Allowances-in-Cap-and-Trade-Program-Design.pdf.

Wikipedia

{{cite report |last1=BUSCH |first1=CHRIS |last2=HARVEY |first2=HAL |last3=MIN |first3=HU |last4=SHUANG |first4=LIU |title=CONSIGNMENT AUCTIONING OF CARBON ALLOWANCES IN CAP-AND-TRADE PROGRAM DESIGN |publisher=Energy Innovation |date=June 2018 |url=https://energyinnovation.org/wp-content/uploads/Consignment-Auctioning-of-Carbon-Allowances-in-Cap-and-Trade-Program-Design.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{busch2018consignment, author = {BUSCH, CHRIS and HARVEY, HAL and MIN, HU and SHUANG, LIU}, title = {{CONSIGNMENT AUCTIONING OF CARBON ALLOWANCES IN CAP-AND-TRADE PROGRAM DESIGN}}, institution = {Energy Innovation}, year = {2018}, month = jun, url = {https://energyinnovation.org/wp-content/uploads/Consignment-Auctioning-of-Carbon-Allowances-in-Cap-and-Trade-Program-Design.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }