The economics of subnational carbon policy interactions and integration

An integrated, nationwide carbon policy is essential to achieve US environmental targets relating to carbon emissions. The carbon policy literature is loaded with qualitative analysis of the implications or mechanisms of an integrated emissions market across the US, but current quantitative studies do not offer solutions regarding the interactions of coexisting US regional emission markets and other policy instruments. Therefore, this dissertation attempts to answer three fundamental concerns about US carbon policy. The second chapter analyzes the welfare implications of different relative stringencies of cap-setting under a proposed integration of two emissions markets, considering the attributes relevant to each market. The third chapter extends this market integration analysis by adding an intertemporal feature to analyze the consequences of integrating existing emission markets in the US (i.e., California and RGGI). The fourth chapter examines the adverse economic implications of adopting several overlapping carbon policy instruments to regulate carbon emissions in a region. The second and third chapters employ a simple structural model with a stochastic variable to account for uncertainties in emissions. The fourth chapter utilizes a static general equilibrium framework based on IMPLAN data for California to comprehensively evaluate the reactions of the state-wide economy to various carbon policy settings. In general, the results show that integrating existing emissions markets could generate both positive and negative effects on economic welfare. The positive effects result from gains from trading permits, while negative results come from perverse second-best interactions. Policymakers are expected to carefully consider the factors and attributes of all regions prior to setting their policy targets and designing an integrated system of carbon reduction.