Emission Responses To Carbon Pricing In Electricity Markets With Intertemporal Constraints

Abstract

The Regional Greenhouse Gas Initiative (RGGI) regulates CO2 emissions from the power sector in the northeastern states of the U.S. Its effectiveness has been criticized due to the low CO2 allowance price and limited price variation, especially in the early years. Using a model that accounts for intertemporal constraints, this paper studies how firms react to weak CO2 emission regulations. The results show that the RGGI policy has helped decrease the total CO2 emissions by at least 4.73%. An additional $1/ton increase in permit price reduces the total CO2 emissions by 1.85%. CO2 can be reduced by 23.50% if carbon is priced at $15/ton. Slight evidence of fuel switching from coal to natural gas is found.

Department(s)

Economics

Second Department

Mechanical and Aerospace Engineering

Keywords and Phrases

Carbon pricing; CO emissions 2; Intertemporal constraints; RGGI

International Standard Serial Number (ISSN)

1466-4291; 1350-4851

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2023 Taylor and Francis Group; Routledge, All rights reserved.

Publication Date

01 Jan 2023

Link to Full Text

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