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Do differentiated performance standards help coal? CO2 policy in the U.S. electricity sector

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  • Bielen, David A.

Abstract

A salient feature of the Clean Power Plan is that it imposes higher emission rate standards on coal power plants than it does on their natural gas counterparts. In this paper, I examine the consequences of this design feature by modeling a series of tradable performance standard policies. I analyze how fuel-based standard differentiation affects compliance incentives and the regulatory burden on coal stakeholders through three key outcomes: coal usage, coal plant profits, and electricity prices. Analysis of a simple analytic model shows that differentiation, compared to a policy with a uniform standard for all fuel types, always increases coal usage, but price and profit impacts are ambiguous. To quantify these outcomes, I construct and implement a detailed simulation model of the U.S. wholesale electricity market. Simulation results suggest that differentiation increases coal usage modestly, increases coal plant profits well beyond the no-regulation level, and increases electricity prices in almost every region of the country.

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  • Bielen, David A., 2018. "Do differentiated performance standards help coal? CO2 policy in the U.S. electricity sector," Resource and Energy Economics, Elsevier, vol. 53(C), pages 79-100.
  • Handle: RePEc:eee:resene:v:53:y:2018:i:c:p:79-100
    DOI: 10.1016/j.reseneeco.2018.02.002
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    More about this item

    Keywords

    Carbon regulation; Performance standards; Electricity markets; Distributional impacts;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • 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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