How Regional Policies Reduce Carbon Emissions in Electricity Markets: Fuel Switching or Emission Leakage

Abstract

There are many concerns that regional carbon programs reduce emissions through emission leakage instead of through fuel switching. We use individual firm-level data to investigate the mechanisms of how the Regional Greenhouse Gas Initiative (RGGI) reduces CO emissions and quantify emission leakage. We find that the RGGI program reduced CO emissions by 13.43% of the total emissions from 2009 to 2017 in the RGGI area, among which only 14.35% of the emissions reduction is due to fuel switching from coal to natural gas. From 43.11% (the lower bound) to 85.65% (the upper bound) of the emissions reduction in the RGGI-regulated states are leaked into unregulated areas. We also find that policy-induced fuel switching and fuel price-induced fuel switching increase natural gas heat percentage (natural gas heat input relative to natural gas and coal heat input) in the regulated area by 2.98% and 5.17%, respectively.

Department(s)

Economics

Keywords and Phrases

Carbon emission market; Emission leakage; Price signals; RGGI

International Standard Serial Number (ISSN)

0140-9883

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2021 Elsevier, All rights reserved.

Publication Date

01 May 2021

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