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A Proximate Mirror: Greenhouse Gas Rules and Strategic Behavior Under the US Clean Air Act

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  • Dallas Burtraw
  • Karen Palmer
  • Anthony Paul
  • Sophie Pan

Abstract

The development of climate policy in the United States mirrors international developments, with efforts to initiate a coordinated approach giving way to jurisdictions separately taking actions. The centerpiece of US policy is regulation in the electricity sector that identifies a carbon emissions rate standard (intensity standard) for each state but leaves to states the design of policies, including potentially the use of technology policies, emissions rate averaging, or cap and trade. Differences in policies among states within the same power market could promote predatory behavior resulting in a geographic shift in generation and investment in new resources. This paper examines the coordination problem using a detailed partial equilibrium model of operations and investment. We demonstrate that leading jurisdictions have available a rich set of design options including targetted output based allocation that would impose costs on neighbors and may protect against strategic predation. Copyright The Author(s) 2015

Suggested Citation

  • Dallas Burtraw & Karen Palmer & Anthony Paul & Sophie Pan, 2015. "A Proximate Mirror: Greenhouse Gas Rules and Strategic Behavior Under the US Clean Air Act," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 217-241, October.
    • Handle: RePEc:kap:enreec:v:62:y:2015:i:2:p:217-241
    DOI: 10.1007/s10640-015-9963-4
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    References listed on IDEAS

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    1. James B. Bushnell & Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2017. "Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 57-90, May.
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    8. Knut Rosendahl & Halvor Storrøsten, 2011. "Emissions Trading with Updated Allocation: Effects on Entry/Exit and Distribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 243-261, June.
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    Citations

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    Cited by:

    1. Jonathan J Buonocore & Kathleen F Lambert & Dallas Burtraw & Samantha Sekar & Charles T Driscoll, 2016. "An Analysis of Costs and Health Co-Benefits for a U.S. Power Plant Carbon Standard," PLOS ONE, Public Library of Science, vol. 11(6), pages 1-11, June.
    2. James B. Bushnell & Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2017. "Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 57-90, May.
    3. Burtraw, Dallas & Bushnell, James & Munnings, Clayton, 2015. "State and Regional Comprehensive Carbon Pricing and Greenhouse Gas Regulation in the Power Sector under EPA’s Clean Power Plan: Workshop Summary," RFF Working Paper Series dp-15-31, Resources for the Future.
    4. Bialek, Sylwia & Ünel, Burçin, 2022. "Efficiency in wholesale electricity markets: On the role of externalities and subsidies," Energy Economics, Elsevier, vol. 109(C).
    5. Meunier, Guy & Montero, Juan-Pablo & Ponssard, Jean-Pierre, 2018. "Output-based allocations in pollution markets with uncertainty and self-selection," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 832-851.
    6. Thomas Sterner, 2015. "Beyond IPCC, Research for Paris 2015 and Beyond," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 207-215, October.
    7. Wright, Evelyn & Kanudia, Amit, 2016. "Variation in outcomes and leakage potential across Clean Power Plan compliance designs," Energy Economics, Elsevier, vol. 60(C), pages 438-450.
    8. Palmer, Karen & Burtraw, Dallas & Paul, Anthony & Yin, Hang, 2017. "Using Production Incentives to Avoid Emissions Leakage," Energy Economics, Elsevier, vol. 68(S1), pages 45-56.
    9. Goulder, Lawrence H. & Long, Xianling & Lu, Jieyi & Morgenstern, Richard D., 2022. "China's unconventional nationwide CO2 emissions trading system: Cost-effectiveness and distributional impacts," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    10. Lange, Ian & Maniloff, Peter, 2021. "Updating allowance allocations in cap-and-trade: Evidence from the NOx Budget Program," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    11. V. Kerry Smith, 2015. "Should Benefit–Cost Methods Take Account of High Unemployment? Symposium Introduction," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 165-178.
    12. Linn, Joshua & Shih, Jhih-Shyang, 2019. "Do lower electricity storage costs reduce greenhouse gas emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 130-158.
    13. Anthony Paul & Karen Palmer & Matthew Woerman, 2015. "Incentives, Margins, And Cost Effectiveness In Comprehensive Climate Policy For The Power Sector," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-27, November.
    14. Fell, Harrison & Maniloff, Peter, 2018. "Leakage in regional environmental policy: The case of the regional greenhouse gas initiative," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 1-23.
    15. Burtraw, Dallas & McCormack, Kristen, 2017. "Consignment auctions of free emissions allowances," Energy Policy, Elsevier, vol. 107(C), pages 337-344.
    16. Zhou, Yishu & Huang, Ling, 2016. "Have U.S. power plants become less technically efficient? The impact of carbon emission regulation," Energy Economics, Elsevier, vol. 58(C), pages 105-115.

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    More about this item

    Keywords

    Climate policy; Efficiency; Equity; Clean Air Act; Coal; Compliance flexibility; Regulation; States; K32; Q54; Q58;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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