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When competition plays clean: How electricity market liberalization facilitated state-level climate policies in the United States

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  • Lee, Nathan R.

Abstract

Why do some governments adopt policies to mitigate climate change while others do not? In this study, I illustrate the importance of industrial organization in shaping prospects for climate mitigation policy. Using a difference-in-differences analysis, I show that U.S. states which adopt electricity market liberalization laws are subsequently fifteen to forty-three percentage points more likely to adopt a renewable portfolio standard and fifteen to thirty percentage points more likely to adopt a cap-and-trade program. I argue that the forced reduction in market share of incumbent utilities associated with market liberalization laws undermined the political dominance of legacy producers and facilitated the growth of independent power producers (IPPs). Following liberalization, I show how these firms disproportionately benefited from the development of renewable energy, and how their growth in market share corresponded with a rise in political activity, thus offering a countervailing industrial interest-group influence to legacy producers. These findings demonstrate the importance of industrial organization in shaping long-run prospects for climate mitigation. More generally, this study sheds light on how government interventions can shape industrial interest-group dynamics.

Suggested Citation

  • Lee, Nathan R., 2020. "When competition plays clean: How electricity market liberalization facilitated state-level climate policies in the United States," Energy Policy, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:enepol:v:139:y:2020:i:c:s0301421520300665
    DOI: 10.1016/j.enpol.2020.111308
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