Evaluation of wholesale electricity market interactions with different carbon policy designs

For the electricity regulator of an international market, Brattle experts evaluated the policy and market design options for implementing the government’s carbon policy within the guidelines of the policy constraints. We surveyed the advantages, disadvantages, and likely price impacts of rate-based and mass-based mechanisms in electricity market, interactions with the broader economy-wide offsets market, potential implications for the total national carbon budget, investment/retirement implications, approaches to accommodating new entry, interactions with current renewables standards, and alternative mass allocation approaches. Based on the regulator’s priorities and constraints, we designed two comprehensive policy design options that minimized the potential for investment and dispatch inefficiencies, one with a rate-based standard and one with mass-based.