Do Electricity Markets Promote Decarbonization? Evidence From State Level Data in the United States *
80 Pages Posted: 28 Jun 2023
Date Written: July 08, 2024
Abstract
Since the mid-1990s the changing electricity generation technology mix has resulted in electricity sector carbon dioxide emissions that are 32 percent lower than their 2005 levels. What role have wholesale power markets played in enabling this decarbonization? We examine this question using annual state-level data for 1990-2020. The institutional complexity of the history of wholesale power markets and regulatory restructuring informs our block treatment window difference-indifferences empirical strategy, in which we compare generation in restructured states to different control states across different time periods. Our results suggest that wholesale power markets had the greatest impact on the generation fuel mix relative to the control states in the period up to 2012, largely but not entirely due to the substitution of natural gas for other fossil fuel generation, namely coal. In more recent years, restructured states and control states look more similar in their generation mix. Our event study results support this conclusion.
Keywords: Market structure, Electricity markets, Technology, Environment, Emissions
JEL Classification: L94, L95, Q35, Q38, Q42, Q53
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