Carbon Prices and Fuel Switching: A Quasi-experiment in Electricity Markets

Abstract

Within the Pennsylvania–New Jersey–Maryland electricity market, Delaware and Maryland participate in the Regional Greenhouse Gas Initiative (RGGI) but other states do not, providing a quasi-experimental setting to study the RGGI program. Using a difference-in-difference framework, we find that, overall the RGGI program led to 6.22 million short tons of CO2 reduction per year in Delaware and Maryland, or about 19.10% of the average total potential annual emissions in these two states from 2009 to 2013. Counterintuitively however, the reduction is mainly achieved through reduction of coal inputs and emission leakage instead of fuel switching from coal to natural gas or from fossil fuel (coal and natural gas) to non-fossil fuel.