Separate Markets for Externalities: Regional versus State-by-State Implementation of the Clean Power Plan
In the U.S., laws that are enacted at the federal level have to be implemented by individual states. In general, although a single market for the environmental externality is ideal, only separate markets may be feasible.
The difficulty of establishing a single market raises the question to what extent separate markets are good enough substitutes for a single market. This study empirically examines this question in the context of the Clean Power Plan. The goal is to compare electricity market outcomes under regional and state-by-state implementations of the CPP, and to identify the important economic mechanisms that drive their relative efficiencies.
Grant Result
When it comes to carbon dioxide emissions, how inefficient are separate markets versus a single market? Inefficiencies associated with separate markets are mitigated by the fact that firms owning plants across multiple markets participate in a single integrated market for electricity.
