The EPA's Clean Power Plan sets goals for CO2 emissions rate reductions by 2030 that vary substantially across states. States can choose the regulatory mechanism they use and whether or not to join with other states in implementing their goals. We analyze incentives to adopt rate standards versus cap-and-trade with theory and simulation. We show conditions where adoption of inefficient rate standards is a dominant strategy from both consumers' and generators' perspectives. Numerical simulations of the western electricity system highlight incentives for uncoordinated policies that lower welfare and increase emissions relative to coordination.
Bushnell, James B., Stephen P. Holland, Jonathan E. Hughes, and Christopher R. Knittel.
"Strategic Policy Choice in State-Level Regulation: The EPA's Clean Power Plan."
American Economic Journal: Economic Policy,
State and Local Government: Other Expenditure Categories
Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Climate; Natural Disasters and Their Management; Global Warming
Environmental Economics: Government Policy