Allowance price and distributional effects under a personal carbon trading scheme

Personal Carbon Trading (PCT) is a downstream cap-and-trade scheme to reduce carbon emissions from the household sector. In comparison to an upstream carbon trading scheme, PCT is a progressive scheme in which the poorer consumers are mostly 'winners', as their levels of emissions are generally lower. This paper investigates the equilibrium price for allowances and distributional effects under a PCT scheme. First, we propose an equilibrium model for PCT from which we derive an equilibrium price for allowances. Second, a consumer surplus analysis is conducted to examine the welfare changes caused by the PCT scheme. Generally, we find that the PCT scheme is progressive and can provide a buffer between the energy and allowance price. Based on these results, the implications are discussed and suggestions for a future study are provided.