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How regional policies reduce carbon emissions in electricity markets: Fuel switching or emission leakage

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  • Zhou, Yishu
  • Huang, Ling

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 CO2 emissions and quantify emission leakage. We find that the RGGI program reduced CO2 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.

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  • Zhou, Yishu & Huang, Ling, 2021. "How regional policies reduce carbon emissions in electricity markets: Fuel switching or emission leakage," Energy Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:eneeco:v:97:y:2021:i:c:s0140988321001146
    DOI: 10.1016/j.eneco.2021.105209
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    More about this item

    Keywords

    Carbon emission market; Price signals; Emission leakage; RGGI;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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