To preserve the voluntary market for renewable energy, federal cap-and-trade program design needs to provide a mechanism to ensure that purchases of voluntary renewable energy continue to reduce GHG emissions under the cap. To accomplish this important objective, voluntary REC purchases must count against the emissions cap and result in a corresponding reduction of carbon allowances. This outcome can be accomplished through several policy options:
Option 1: Allocate allowances to generators based on electricity output. Allocate allowances not only to fossil generators but also to renewable generators. Renewable generators that receive allowances can then retire allowances when their renewable certificates (RECs) are sold to voluntary customers
Option 2: Off-the-top approach. If allowances are allocated only to emitting generators, the allocation design could include explicit provision to retire allowances for voluntary renewable energy demand before the remainder of allowances is distributed
Option 3: Apply fossil attributes to null energy. Load serving entities could be required to retire the appropriate amount of allowances associated with power purchase agreements from renewable facilities that do not include RECs and which were built before the cap-and-trade program takes effect
Additionally, the carbon reduction value of all renewable distributed energy generation installations, regardless of size, must be recognized under any federal cap-and-trade program.
