Do Power Markets Promote Decarbonization? Evidence from State Level Data in the United States

Abstract

Since the mid-1990s the changing electricity generation technology mix has been associated with electricity sector carbon dioxide emissions that are 32 percent lower than their 2005 levels. What role have wholesale power markets played in enabling this decarbonization? We examine this question using annual state-level data for 1990 to 2020. The institutional complexity of the history of wholesale power markets and regulatory restructuring informs our block treatment window difference-in-differences empirical strategy, in which we compare generation in restructured states to different control states across different time periods. Our results suggest that lower-carbon generating sources appear to be built in greater numbers in wholesale markets relative to the control states up to 2012, largely but not entirely due to the substitution of natural gas for other fossil fuel generation, namely coal. In more recent years, restructured states and control states look more similar in their generation mix. Our event study results support this conclusion.

JEL Classification: L51, Economics of Regulation; L94, Electric Utilities; Q35, Hydrocarbon Resources; Q48, Energy: Government Policy; Q53, Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

Keywords

market structure power markets technology environment emissions

Get full access to this article

View all access options for this article.

References

Averch

Johnson

L. L.

1962. “Behavior of the Firm under Regulatory Constraint.”American Economic Review 52 (5): 1052–69.

Barbose

G. L.

2019. US Renewable Portfolio Standards: 2019 Annual Status Update. Lawrence Berkeley National Laboratory.

Borenstein

Bushnell

2015. “The US Electricity Industry after 20 Years of Restructuring.”Annual Review of Economics 7 (1): 437–63.

Brehm

2019. “Natural Gas Prices, Electric Generation Investment, and Greenhouse Gas Emissions.”Resource and Energy Economics 58: 101106.

Bushnell

J. B.

Wolfram

2005. “Ownership Change, Incentives and Plant Efficiency: The Divestiture of US Electric Generation Plants.” Working Paper, University of California Energy Institute.

Chan

H. R.

Fell

Lange

2017. “Efficiency and Environmental Impacts of Electricity Restructuring on Coal-Fired Power Plants.”Journal of Environmental Economics and Management 81: 1–18.

Cicala

2015. “When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation.”American Economic Review 105 (1): 411–44.

Cicala

2022. “Imperfect Markets versus Imperfect Regulation in US Electricity Generation.”American Economic Review 112 (2): 409–441.

Craig

J. D.

Savage

S. J.

2013. “Market Restructuring, Competition and the Efficiency of Electricity Generation: Plant-Level Evidence from the United States 1996 to 2006.”Energy Journal 34 (1): 1–31.

10.

Cramer

Tschirhart

1980. “National and International Electric Power Pools.” In The Theory and Structures of International Political Economy, edited by T.

Sandler

. Westview.

11.

Csereklyei

Stern

D. I.

2018. “Technology Choices in the US Electricity Industry before and after Market Restructuring.”Energy Journal 39 (5): 157–82.

12.

Cullen

2013. “Measuring the Environmental Benefits of Wind-Generated Electricity.”American Economic Journal: Economic Policy 5 (4): 107–133.

13.

Cullen

J. A.

Mansur

E. T.

2017. “Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution.”American Economic Journal: Economic Policy 9 (3): 106–133.

14.

Fabrizio

K. R.

Rose

N. L.

Wolfram

C. D.

2007. “Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency.”American Economic Review 97 (4): 1250–77.

15.

Federal Energy Regulatory Commission. 2020. Energy Primer: A Handbook of Energy Market Basics. Federal Energy Regulatory Commission. https://www.ferc.gov/media/2020-energy-primer-handbook-energy-market-basics. Accessed July 2022.

16.

Federal Power Commission. 1970. The 1970 National Power Survey, Part III. Federal Power Commission.

17.

Fell

Kaffine

D. T.

2018. “The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions.”American Economic Journal: Economic Policy 10 (2): 90–116.

18.

Glachant

J.-M.

2006. “Generation Technology Mix in Competitive Electricity Markets.” In Competitive Electricity Markets and Sustainability, edited by Leveque

Edward Elgar.

19.

Hill

2021. “Excessive Entry and Investment in Deregulated Markets: Evidence from the Electricity Sector.”Journal of Environmental Economics and Management 110: 102543.

20.

Hirsh

R. F.

2002. Power Loss: The Origins of Deregulation and Restructuring in the American Electric Utility System. MIT Press.

21.

Holladay

J. S.

LaRiviere

2017. “The Impact of Cheap Natural Gas on Marginal Emissions from Electricity Generation and Implications for Energy Policy.”Journal of Environmental Economics and Management 85: 205–227.

22.

Johnson

J. X.

Novacheck

2015. “Emissions Reductions from Expanding State-Level renewable Portfolio Standards.”Environmental Science & Technology 49 (9): 5318–25.

23.

Joskow

P. L.

2005. “Transmission Policy in the United States.”Utilities Policy 13 (2): 95–115.

24.

Joskow

P. L.

2013. “Natural Gas: From Shortages to Abundance in the United States.”American Economic Review 103 (3): 338–43.

25.

Kaffine

D. T.

McBee

B. J.

Lieskovsky

2013. “Emissions Savings from Wind Power Generation in Texas.”Energy Journal 34 (1): 155–75.

26.

Laffont

J.-J.

Tirole

1993. A Theory of Incentives in Procurement and Regulation. MIT Press.

27.

Matisoff

D. C.

Edwards

2014. “Kindred Spirits or Intergovernmental Competition? The Innovation and Diffusion of Energy Policies in the American States (1990–2008).”Environmental Politics 23 (5): 795–817.

28.

Neufeld

2016. Selling Power: Economics, Policy, and Electric Utilities before 1940. University of Chicago Press.

29.

Novan

2015. “Valuing the Wind: Renewable Energy Policies and Air Pollution Avoided.”American Economic Journal: Economic Policy 7 (3): 291–326.

30.

Park

Kaffine

D. T.

2025. “Do Competitive Markets Clean Up the US Electricity Sector?: Evidence from the Southwest Power Pool.”Energy Journal 46 (2): 99–125.

31.

Palmer

Paul

Keyes

2018. “Changing Baselines, Shifting Margins: How Predicted Impacts of Pricing Carbon in the Electricity Sector Have Evolved over Time.”Energy Economics 73: 371–79.

32.

Rhodes

J. D.

Upshaw

C. R.

Cole

W. J.

Holcomb

C. L.

Webber

M. E.

2014. “A Multi-Objective Assessment of the Effect of Solar PV Array Orientation and Tilt on Energy Production and System Economics.”Solar Energy 108: 28–40.

33.

Sharabaroff

Boyd

Chimeli

2009. “The Environmental and Efficiency Effects of Restructuring on the Electric Power Sector in the United States: An Empirical Analysis.”Energy Policy 37 (11): 4884–93.

34.

Siler-Evans

Azevedo

I. L.

Morgan

M. G.

Apt

2013. “Regional Variations in the Health, Environmental, and Climate Benefits of Wind and Solar Generation.”Proceedings of the National Academy of Sciences 110 (29): 11768–73.

35.

U.S. Bureau of the Census. n.d. “County Population Data Dictionary - 1969-2020.”https://seer.cancer.gov/popdata/popdic.html. Accessed May 2022.

36.

U.S. Energy Information Administration. n.d. “Energy Explained: Electricity in the United States.”https://www.eia.gov/energyexplained/electricity/electricity-in-the-us.php. Accessed June 2024.

37.

U.S. Energy Information Administration. n.d. “Natural Gas Summary.”https://www.eia.gov/dnav/ng/NG_SUM_LSUM_A_EPG0_PG1_DMCF_A.htm. Accessed May 2022.

38.

U.S. Energy Information Administration. 2021. “Electric Power Sector CO₂ Emissions Drop as Generation Mix Shifts from Coal to Natural Gas.” Today in Energy. https://www.eia.gov/todayinenergy/detail.php?id=48296. Accessed November 2022.

39.

U.S. Energy Information Administration. 2022. “Electric Power Monthly.”https://www.eia.gov/electricity/monthly/. Accessed November 2022.

40.

U.S. Energy Information Administration. 2024. “U.S. Energy-Related Carbon Dioxide Emissions, 2023—Report Appendix and Methodology.”https://www.eia.gov/environment/emissions/carbon/pdf/2023_Appendix_A_methodology.pdf. Accessed June 2024.

41.

U.S. Environmental Protection Agency. n.d. “Climate Change Indicators: Heating and Cooling Degree Days.”https://www.epa.gov/climate-indicators/climate-change-indicators-heating-and-cooling-degree-days. Accessed May 2022.

Supplementary Material

Please find the following supplemental material available below.

For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.

For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.

0.00 MB

0.04 MB