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Emissions trading, point-of-regulation and facility siting choices in the electric markets

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  • Yihsu Chen
  • Andrew Liu

Abstract

This paper examines the effects of emissions trading on firms’ capacity siting choices in the electric sector, considering three programs that are different by their point-of-regulation: source-, load and first-jurisdictional-deliverer approaches. We model each program by assuming electricity sales are through bilateral contracts, and analyze the solutions properties and economic and emissions implications. We have three central findings in this paper. First, when electricity sales in both directions (i.e., in-state to out-of-state and vice verse) are subject to an emissions cap, three programs will produce identical siting distribution. Second, the emissions leakage in the long-run could be lower than in the short-run case in which capacity expansion is not allowed. This is so because in the long-run power producers may opt for clean technologies in fear of the emission costs under a cap-and-trade program. Third, if compared to pure source-based program in which the import sales are not subject to an emissions cap, more pollution-intensive facilities are expected to build in uncapped states, where the regulation is less stringent. Our findings are therefore consistent with some empirical evidence of pollution haven hypothesis. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Yihsu Chen & Andrew Liu, 2013. "Emissions trading, point-of-regulation and facility siting choices in the electric markets," Journal of Regulatory Economics, Springer, vol. 44(3), pages 251-286, December.
  • Handle: RePEc:kap:regeco:v:44:y:2013:i:3:p:251-286
    DOI: 10.1007/s11149-013-9224-9
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    References listed on IDEAS

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    More about this item

    Keywords

    $$mathrm {CO}_2$$ CO 2 emissions trading; Electric market; Point-of-regulation; Capacity expansion; Pollution haven hypothesis; Q48; Q53; Q58;
    All these keywords.

    JEL classification:

    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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