Recap: Are Carbon Markets Reshaping the US Electricity Industry

California’s cap-and-trade program is the second largest in the world and has been in effect for nearly a decade in hopes of decreasing emission levels. The program, according to Matthew Zaragoza-Watkins, assistant professor at Vanderbilt University, was aimed at reducing emissions back to 1990 levels by 2020, a goal they reached far before the deadline by putting more money into low-carbon energy sources and imposing a penalty on high-carbon, imported electricity. 

Zaragoza-Watkins joined the Baker Center for an Energy & Environment Forum on March 9 to discuss a study on the cap-and-trade program’s impacts on the emissions and output from fossil-fired power plants connected to the western electricity grid. 

The Problem with Imported Emissions 

The study showed imported emissions were difficult to observe due to electrical generators not being required to report their emissions levels. To counter this, California put in a default emissions rate of 0.428 and assigned it to any generator that didn’t report causing those generators to report their emissions if produced under that level.  

Researchers measured these emissions levels in hopes of seeing how the cap-and-trade policy, along with import taxes, have changed California’s electrical grid. They looked at 40 total targets of both coal and gas units in California, and 3,500 units outside of California to compare. They found there was no actual change, only a substitution of output sources in the electrical production from before and after the program was implemented.  

The Impact of the Cap-and Trade Policy  

With the implementation of the cap-and-trade policy, however, there was a reduction in output in-state, which meant a stronger pick-up of out-of-state.  California’s in-state gas-fired generators have declined by 6 percent, and out-of-state coal-fired generators have declined by 14 percent. But out-of-state gas-fired generators have increased by 38 percent, accounting for about one-third of the total emissions the program has influenced over its time.