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

The research note analyzes California's consignment auctioning mechanism, where the government auctions free allowances on behalf of companies and returns the revenue to them. This hybrid approach is proposed as a solution for China's national ETS to enable price discovery and price collars while cushioning the economic impact on energy-intensive, trade-exposed sectors and bypassing institutional barriers regarding government revenue accounts.

• Auctioning is presented as the most efficient method for carbon price discovery and the most effective way to implement price floors and ceilings to reduce cost uncertainty.
• Output-based allocation (OBA) is identified as the preferred method of free allocation to protect 'energy-intensive, trade-exposed' firms from international competitiveness risks by rewarding production levels rather than emission levels.
• California's consignment auction process involves three steps: the government provides free allowances to investor-owned utilities (IOUs), auctions them on the government's behalf, and then returns the resulting revenue to the companies.
• Consignment auctioning can bypass legal and institutional hurdles in China because auction proceeds are collected on behalf of entities, meaning they do not have to be processed as 'government revenue' through the general budget account of the Ministry of Finance.
• In California, consignment auctioning allowed for a high volume of auctioned allowances from the start of the program, which improves the quality of the price signal and reduces the risk of price manipulation.
• California used consignment auction revenue to protect consumers via 'Climate Credits' (fixed rebates), ensuring that while the carbon price signal remained in retail electricity prices to encourage conservation, overall bills remained low.

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} }