The economic incentives of carbon cap and trade regulation

This paper will study the effect of cap and trade environmental regulations on the energy output and carbon efficiency of power plants in the United States. By using regression analysis with fixed effects, I analyze the effectiveness of the Regional Greenhouse Gas Initiative (RGGI) in bringing about its policy goals of economically efficient carbon emission reductions. The results suggest that operators who were regulated by this program limited their overall energy output, but may have done so strategically to prepare themselves for future reductions in the emissions cap. I also found that the energy efficiency of regulated power plants improved slightly, especially in the program's later years. Overall, this study shows that cap and trade regulation is a viable option for reducing carbon emissions and future research should focus on the impact of the RGGI after its emission cap has been lowered.