The inclusion or exclusion of renewable energy generators in emerging U.S. carbon markets could a have profound impact on the whether these markets have the intended effect of reducing overall carbon emissions and whether the voluntary market for green energy will remain or dissolve. This paper explores the allowance distribution schemes for cap-and-trade markets and their impact on renewable energy. The current input-based allocation system proposed for the Regional Greenhouse Gas Initiative in the Northeastern U.S. prevents renewable energy from contributing to emissions reductions within the market and will preclude green power marketers from advertising carbon offset claims for this renewable energy. A scheme where allowances are set aside for current and future voluntary green power market sales and retired by customers when they are purchased would be the most favorable for renewable energy markets. Whichever allocation scheme is chosen should be implemented in both emerging U.S. markets to decrease problems of allowance fungibility and reduce transaction costs associated with allowance tracking.