Overlapping Environmental Policies and the Impact on Pollution

This paper examines how increases in renewable generation interact with market-based environmental regulations to affect the emissions of both regulated and unregulated pollutants. Using a simple analytical model, I first demonstrate that, when combined with a cap-and-trade program, expansions in renewable generation have the potential to cause an undesirable outcome—they can increase emissions of unregulated pollutants. To explore whether this unintended increase in unregulated pollution could occur in practice, I look back at a NOX cap-and-trade program that was in place in the eastern United States from 2009 through 2014—the EPA’s Clean Air Interstate Rule. Using hourly generation and emissions data, I estimate how unregulated emissions of CO2 and SO2 would have been affected by adding new wind turbines and solar panels in the presence of a binding cap on NOX. I show that, once the interaction with the NOX cap is taken into consideration, renewable capacity additions would have offset much less CO2 than was previously thought. Moreover, I find that the renewable additions would have increased SO2 emissions.