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Do Competitive Markets Clean Up the US Electricity Sector?: Evidence From the Southwest Power Pool

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  • Doyoung Park
  • Daniel T. Kaffine

Abstract

In the US, there has been a movement toward competitive electricity markets with system-operator auctions. However, the impact of such market reforms on non-market outcomes like emission rates remains unclear. We decompose how competition in wholesale electricity markets can affect carbon emission rates of electricity generating units (EGUs) through process , reallocation , and selection effects. Using event-study and difference-indifference strategies, we quantify the Day-Ahead Market’s (DAM) environmental impact in the Southwest Power Pool and assess the importance of each channel, with Pennsylvania, New Jersey, and Maryland interconnection serving as the comparison group. We find DAM reduced average carbon emission rates of EGUs by 0.033 tons per MWh, a roughly 4 percent reduction. This reduction is primarily driven by the selection effect: emission-intensive and uneconomical EGUs retire after the DAM market reform. This corresponds to an annual avoidance of 7.66 million tons of carbon dioxide emissions, worth approximately $383.4 million in avoided damages. JEL Classification: L51, L94, Q48, Q53

Suggested Citation

  • Doyoung Park & Daniel T. Kaffine, 2025. "Do Competitive Markets Clean Up the US Electricity Sector?: Evidence From the Southwest Power Pool," The Energy Journal, , vol. 46(2), pages 99-125, March.
    • Handle: RePEc:sae:enejou:v:46:y:2025:i:2:p:99-125
    DOI: 10.1177/01956574241305584
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    Keywords

    integrated markets; day-ahead market; carbon emission intensity; Southwest power pool; trade and environment;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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