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The Environmental Impacts of Electricity Restructuring: Looking Back and Looking Forward


  • Burtraw, Dallas

    () (Resources for the Future)

  • Palmer, Karen

    () (Resources for the Future)


In the mid-1990s, when the Federal Energy Regulatory Commission was preparing to release Order 888 requiring open access to the transmission grid, the commission, environmental groups, and the Environmental Protection Agency, among others, raised the question of how open access and greater competition in wholesale electricity markets might affect the environment. If open access worked as expected, underutilized older coal-fired generators in the Midwest and elsewhere might find new markets for their power, leading to associated increases in air pollution emissions. Restructuring also might lead to retirements of inefficient nuclear facilities, whose generation would be replaced by fossil generation, further increasing emissions. On the other hand, some suggested that in the long run, the anticipated increase in investment in new gas-fired generators might accelerate a switch from coal to gas that would decrease emissions. Lastly, if restructuring produced the desired result of lower electricity prices, many observers suggested that an increase in electricity demand would lead to more generation and higher emissions. The counterargument was that restructuring would lead to product differentiation and customer choice, including the opportunity for customers to willingly select “green electricity.” In this paper we review the prospective literature on the possible or anticipated effects of restructuring on the environment and the evidence from changes in the intervening years to utilization of coal facilities, performance of existing nuclear plants, investment in natural gas generation, and electricity prices. We assess how actual experience compares with prior expectations. We discuss other changes in upstream fuel markets, energy policy, and environmental regulations and the role that each of these factors plays in the efforts to evaluate the environmental effects of restructuring. Today the movement toward restructuring has stalled, leaving the country divided into competitive and regulated regions. We discuss the implications of this division for the future of environmental policy and the complicated relationships between policy agendas concerning mitigation of climate change and further restructuring of the electricity industry.

Suggested Citation

  • Burtraw, Dallas & Palmer, Karen, 2005. "The Environmental Impacts of Electricity Restructuring: Looking Back and Looking Forward," Discussion Papers dp-05-07, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-05-07

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    References listed on IDEAS

    1. Palmer, Karen & Newell, Richard & Gillingham, Kenneth, 2004. "Retrospective Examination of Demand-side Energy-efficiency Policies," Discussion Papers dp-04-19, Resources For the Future.
    2. Bohi, Douglas R. & Palmer, Karen L., 1996. "The efficiency of wholesale vs. retail competition in electricity," The Electricity Journal, Elsevier, vol. 9(8), pages 12-20, October.
    3. Palmer, Karen & Burtraw, Dallas, 1997. "Electricity restructuring and regional air pollution," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 139-174, March.
    4. Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 550-561, August.
    5. Brennan, Timothy, 1999. "Do Lower Prices For Polluting Goods Make Environmental Externalities Worse?," Discussion Papers dp-99-40, Resources For the Future.
    6. O'Sheasy, Michael T., 2002. "Is Real-Time Pricing a Panacea? If So, Why Isn't It More Widespread?," The Electricity Journal, Elsevier, vol. 15(10), pages 24-34, December.
    7. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
    8. Arimura, Toshi H., 2002. "An Empirical Study of the SO2 Allowance Market: Effects of PUC Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 271-289, September.
    9. Spencer Banzhaf, H. & Burtraw, Dallas & Palmer, Karen, 2004. "Efficient emission fees in the US electricity sector," Resource and Energy Economics, Elsevier, vol. 26(3), pages 317-341, September.
    10. Lee, Henry & Darani, Negeen, 1996. "Electricity restructuring and the environment," The Electricity Journal, Elsevier, vol. 9(10), pages 10-15, December.
    11. Palmer, Karen & Ando, Amy, 1998. "Getting on the Map: The Political Economy of State-Level Electricity Restructuring," Discussion Papers dp-98-19-rev, Resources For the Future.
    12. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "Cost-Effective Reduction of NOx Emissions from Electricity Generation," Discussion Papers dp-00-55-rev, Resources For the Future.
    13. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "The Effect of Allowance Allocation on the Cost of Carbon Emission Trading," Discussion Papers dp-01-30-, Resources For the Future.
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    Cited by:

    1. Burtraw, Dallas & Szambelan, Sarah Jo, 2009. "U.S. Emissions Trading Markets for SO2 and NOx," Discussion Papers dp-09-40, Resources For the Future.
    2. Rolando Fuentes-Bracamontes, 2014. "Can electricity reform help Mexico achieve carbon emission reductions?," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 3(3), pages 340-358, November.
    3. John Hilke, 2008. "Economics, Competition, and Costs in the Resructuring of U.S. Electricity Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(3), pages 289-296, May.
    4. Sharabaroff, Alexander & Boyd, Roy & Chimeli, Ariaster, 2009. "The environmental and efficiency effects of restructuring on the electric power sector in the United States: An empirical analysis," Energy Policy, Elsevier, vol. 37(11), pages 4884-4893, November.

    More about this item


    electricity; electric utilities; regulation; competition; environment; air pollution; natural gas; coal; nuclear; renewables; customer choice;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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