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Leakage in Regional Climate Policy? Implications of Electricity Market Design

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Listed:
  • Brittany Tarufelli

    () (Louisiana State University)

  • Ben Gilbert

    () (Division of Economics and Business, Colorado School of Mines)

Abstract

We study how the expansion of a centralized real-time electricity market affects emissions leakage from a regional cap-and-trade program. We find the expansion caused modest leakage increases, despite relatively small trading volumes. Natural gas plants just outside the cap-and-trade region increasingly balance intermittent renewables. Generation from these plants increases at night when average wind generation is high. These same plants systematically ramp down in response to unexpected solar generation because of friction between how the day-ahead and real-time markets commit resources. Our results suggest that reduced transactions costs in trade between regulated and unregulated regions may exacerbate leakage.

Suggested Citation

  • Brittany Tarufelli & Ben Gilbert, 2019. "Leakage in Regional Climate Policy? Implications of Electricity Market Design," Working Papers 2019-07, Colorado School of Mines, Division of Economics and Business.
  • Handle: RePEc:mns:wpaper:wp201907
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    File URL: http://econbus-papers.mines.edu/working-papers/wp201907.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity market design; Carbon leakage; Emissions; Solar power;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • 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
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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