A Study of Issues Surrounding Emissions Leakage Policies in the Electricity Sector Within Sub-National Cap and Trade Systems in the United States

Finch, Vanessa Diane

Graduate Thesis Or Dissertation

A Study of Issues Surrounding Emissions Leakage Policies in the Electricity Sector Within Sub-National Cap and Trade Systems in the United States Public Deposited

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Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/2r36tx861

Abstract

Climate change policy at the national and international level has met with significant resistance, and sub-national cap and trade programs in the United States are being implemented in their stead. However, these sub-national policies face significant inefficiencies because they must “imperfectly” map cap and trade programs onto a small subsector of a nationally connected economy. Policymakers cannot avoid the expense of extensive administrative resources upfront to battle such inefficiencies without sacrificing the program’s structural and environmental integrity once in operation. This is demonstrated in this paper through an analysis of policies to battle emissions leakage in the electricity sector, where increased electricity prices under the sub-national cap and trade program could cause increased use of dirtier, cheaper electricity generation outside of the cap. Emissions leakage is an unfortunate but important consequence of overlaying a cap and trade program on top of an extremely interconnected national electricity grid. The amount of resources expended to create policy that anticipates emissions leakage issues must be determined through a difficult and value-laden balancing of administrative efficiency and environmental integrity, and should be guided by precaution. This is especially true because the sub-national policymakers are creating climate change programs in the face of significant jurisdictional, efficiency, and technical hurdles. Two case studies are specifically highlighted in examining emissions leakage policies for sub-national programs: The Regional Greenhouse Gas Initiative (“RGGI”) and California’s Proposed Regulation to Implement a California Cap and Trade Program. RGGI’s usage of a passive approach to emissions leakage policy is contrasted against California’s proactive, resource-intensive approach. The paper uses these case studies to help guide a sub-national policymaker’s decisionmaking process by highlighting the difficulties inherent for a sub-national program, the precaution requisite in balancing administrative resources against environmental integrity, and the possible consequences of a passive versus proactive approach to emission leakage.

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