The impact of transmission constraints on the emissions leakage under cap-and-trade program

• Published in: Energy policy 2012-12, Vol.51, p.164-171
• Main Author: Sauma, Enzo
• Format: Article
• Language: English
• Subjects: Air leakage; Air pollution; Air pollution caused by fuel industries; Applied sciences; Capping; Carbon dioxide; Carbon emissions; Carbon leakage; Cost; Economic data; Electric energy; Electric power; Electric power generation; Electricity; Electricity distribution; Emission standards; Emissions control; Emissions trading; Energy; Energy economics; Energy industry; Energy market; Energy. Thermal use of fuels; environmental markets; Exact sciences and technology; General, economic and professional studies; General. Regulations. Norms. Economy; Greenhouse effect; greenhouse gas emissions; issues and policy; Leakage; Markets; Networks; Power system economics; Production; production costs; Regional; Regulation; Studies; U.S.A; United States
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2012.08.057

Several regional cap-and-trade (C&T) programs are considered or implemented in the United States to control greenhouse gas emissions from the power sector. One concern is the possibility of emissions leakage due to a lack of coherence in the geographic scope of the regional electricity market and the C&T program. Leakage in the context of regulating CO2 emissions is defined as the short-run displacement of CO2 emissions from the capped region to other uncapped regions due to the imposition of a regional C&T scheme. However, the presence of transmission congestion could interact with regulations in an unanticipated way to determining whether leakage would occur and its magnitude if happens. In this paper, we use a two-node network to study the conditions under which the CO2 leakage would happen in a radial network under a C&T program. These conditions are related to transmission capacity, merit order change, and relative production cost between capped and uncapped regions. Since CO2 leakage would likely occur in a radial network during the time when there is surplus transmission capacity, if regional CO2 policies could influence power grid management and operations decisions, then there might be space for a better multi-objective coordination. ► We study conditions under which the CO2 leakage would happen under a C&T program. ► Conditions relate to transmission capacity, merit order change and production cost. ► Transmission congestion interacts with environmental regulations. ► CO2 leakage would likely occur when there is surplus transmission capacity. ► Power grid management and operations decisions should be carefully scrutinized.