Power Sector Emissions Under Tightening Carbon Dioxide Quotas

Abstract

The Regional Greenhouse Gas Initiative (RGGI) was passed by an original collection of 10 northeastern states and is the first cap-and-trade policy in the United States to specifically target carbon dioxide emissions from the electricity sector. We exploit the introduction of this policy and subsequent tightening of the carbon cap to assess how carbon dioxide emissions have changed within RGGI states while also re-evaluating emissions leakages that may have occurred. While RGGI auction prices are relatively low compared to estimates of the social cost of carbon, the policy represents a direct increase in the cost of production and should elicit a behavioral response from producers. Using plant-level data and several identification strategies, we find that there are reductions in emissions from coal-fired plants in RGGI states, but there is mixed evidence at natural gas-fired plants. We also show that the emissions cap reductions enacted in 2014 is where the policy began to have more significant impacts on emissions, and that prior work that found emissions leakage suffers from bias. These conclusions are strongest with careful evaluation of control states since spillover effects of the policy to non-RGGI states are possible within the Eastern Interconnection.

Keywords: Cap and Trade, ETS, carbon dioxide, Regional Greenhouse Gas Initiative