The Regional Greenhouse Gas Initiative: Emission Leakage and the Effectiveness of Interstate Border Adjustments

49 Pages Posted: 13 Aug 2009

Date Written: August 13, 2009

Abstract

We use theoretical and numerical general equilibrium models to analyze the Regional Greenhouse Gas Emission Initiative (RGGI), a cap-and-trade scheme to limit carbon dioxide emissions from electricity generators across ten states in the northeast U.S. Although RGGI’s economic impacts are small, they induce substantial increases in power exports from unconstrained states which result in emission leakage rates of more than 50%. Harmonized taxes of 2-7% on electricity sales in participating states can neutralize leakage and increase aggregate abatement without significant adverse income effects. These results suggest that setting electricity tariffs in conjunction with the emission cap might improve RGGI’s environmental performance.

Keywords: Computable general equilibrium models, Tradable permits, Regional climate change policy, Interstate electricity trade

JEL Classification: C68, F18, Q41, Q54, R13

Suggested Citation

Kolodziej, Marek and Sue Wing, Ian, The Regional Greenhouse Gas Initiative: Emission Leakage and the Effectiveness of Interstate Border Adjustments (August 13, 2009). Available at SSRN: https://ssrn.com/abstract=1448748 or http://dx.doi.org/10.2139/ssrn.1448748

Marek Kolodziej

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Ian Sue Wing (Contact Author)

Boston University ( email )

United States

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