The two obvious methods are to allocate allowances based on either: (a) the amount of electricity produced by the generator in a recent year, or (b) the amount of GHGs emitted by the generator in a recent year. If based on the amount of electricity, Northwest utilities would have excess allowances for a period of time until the cap declined to the point that it matched the level of that utilities' GHG emissions. This would mitigate the cost of GHG regulation for those regions using low-emission resources, and require those regions using high-emisssion resources to take the lead in reducing emissions.

If, on the other hand, the allocation is based on the amount of GHGs emitted, low-emission regions would receive few allowances to emit, while other regions would receive enough allowances to cover most of their inefficient, high-emission generating facilities. This would further exacerbate the negative impact of GHG regulation on Northwest electricity prices. As the cap declined in the succeeding years, the pressure to reduce emissions would be the same on both the high-emission and the low-emission regions, even though the high-emission regions are a bigger part of the problem, and have much bigger and more cost-effective opportunities to reduce their emissions.

Here we have a fairly technical and abstruse aspect of cap-and-trade legislation -- one the public is never going to care about or get involved in -- and yet millions and millions of dollars are at stake. And that's just one example of many.

Climate policy wonks are going to have plenty to chew on for the foreseeable future.

(Oh, hey, look! Literally as I'm writing this post, I see a post over on Environmental Economics about a very similar issue. Wacky.)