Unanticipated Consequences of Regional Greenhouse Gas Policies: Criteria Emissions and the Regional Greenhouse Gas Initiave

The Regional Greenhouse Gas Initiative (RGGI) has been developed by 10 Northeastern and Mid-Atlantic states in an attempt to curb emissions of carbon dioxide (C02) coming from fossil fuel burning power plants. Scheduled to begin in 2009, RGGI is a market based cap and trade emission permit system, where each regulated power plant must obtain one permit for every ton of C02 they create as a product of their electricity generation. This policy is only designed to address greenhouse gases and to date, only C02. What it fails to address is how related emissions of criteria pollutants (sulfur dioxide and nitrogen oxides) may be affected. The market structure of the de-regulated electricity market in the Northeast United States, allows generators and distributors of electricity to make competitive bids on electricity, with the goal of obtaining a supply and price most advantageous to their own business. The physical structure of the electricity market, with regional interconnections, allows distributors to buy electricity from generators from neighboring states and regions. Adding an extra cost to a generator, in the form of a pollution permit, may make a regulated generator\u27s electricity significantly more expensive as compared to unregulated regions, reducing demand in favor of those unregulated cheaper sources. In the case of RGGI, the regulated region predominantly uses natural gas, a clean, and already more expensive fuel than the coal used predominantly in the neighboring states of Pennsylvania, Ohio, Indiana Illinois, Virginia and West Virginia. Market forces may lead to reduced gas-fired generation in RGGI states, in favor of increased coal-fired generation in coal burning states. A shift in generation between these regions may also shift emissions of criteria pollutants to the Midwest. This may have a negative impact on the Northeastern states who already by prevailing wind patterns receive air pollution from these neighboring states. In order to examine this potential, this research gathers data from the U.S. Environmental Protection Agency and the Energy Information Administration. These data include unit level emissions, generation, fuel usage values and the prices of delivered fossil fuels. Using the transcendental logarithmic (translog) cost model to determine how price and generation demand impact demand for fuel, a RGGI policy scenario is modeled which adds to the relative price of each fuel and reduces demand for RGGI region generated electricity. These new fuel demand values are then used to determine how levels of criteria emissions will shift in each region and the study area as a whole. This research finds emissions of criteria pollutants decrease as expected in the RGGI region as generators switch to cleaner fuels. Furthermore, the increased demand from Non-RGGI generators is linked with higher natural gas use, and not coal use as predicted. This study finds criteria emissions for the entire study area decrease over the duration of RGGI policy, contrary to the predicted results of this research