Three Essays on the Efficiency of Carbon Emission Trading Programs

Abstract

Using individual level data from electricity generators, my dissertation empirically investigates the effectiveness of existing regional environmental policies in the U.S. electricity wholesale markets aiming to reduce CO2 emissions. Big drop of natural gas price and limited magnitude and variation of CO2 allowance prices make the contribution of CO2 cap and trade programs questionable. Given the complexity of the electricity markets, the central of my research is to decompose the co-existing various effects on individual firms\u27 emissions and evaluate the performance of current regional regulations. I particularly study the Regional Greenhouse Gas Initiative (RGGI), which regulates power plants in nine northeastern states of the U.S.. The first chapter measures the impact of carbon emission regulation on U.S. power plants\u27 technical efficiency. No evidence of technical efficiency changes due to the RGGI regime in the RGGI area is found. Using a difference-in-difference framework in chapter two, we find that overall the RGGI program leads to 7.72 million short tons of CO2 reduction per year in Delaware and Maryland, or about 34.36% of the average total annual emissions in these two states. All utilities respond to the program by decreasing their heat input per capacity even including natural gas utilities. Chapter 3 studies electricity generators\u27 production behavior and how the decisions are altered with CO2 emission regulations. The results show that the RGGI policy has helped to decrease the total CO2 emissions by at least 4.73% during the sample period. All other things equal, an additional \$1/ton increase in permit price reduce the total CO2 emissions by 1.85%