Electric Power Resource 'Shuffling' and Subnational Carbon Regulation: Looking Upstream for a Solution

Abstract

“Resource shuffling,” a form of carbon leakage, occurs when different subnational approaches to carbon regulation create variations in the costs of production across jurisdictions. This Article addresses the “resource shuffling” problem presented by California’s cap-and-trade program and addresses the merits of its legal and regulatory solutions. The potential for “resource shuffling” — replacing cleaner sources of electric power with dirtier and cheaper sources of energy — is a major threat to California’s environmental goals given that about 30 percent of the electricity consumed in California is imported from other states. This imported electricity tends to come from disproportionately dirty sources (such as coal) and represents more than half of the carbon dioxide emitted as a result of California’s electricity demand. Part I of this Article describes resource shuffling and its significance for subnational efforts to regulate greenhouse gas emissions, such as California’s cap-and-trade program for carbon. Part II discusses the tension that California’s initial regulatory strategy presented with federal regulators who oversee wholesale electric power markets. Part III addresses ways to more effectively regulate resource shuffling. This Article argues that federal energy regulators could improve the efficacy of subnational efforts to address GHG emissions and produce greater certainty for power markets by addressing resource shuffling through a harmonized set of rules or guidelines articulating acceptable least-cost dispatch protocols for the operation of wholesale power markets. Absent this kind of upstream approach, resource shuffling will continue to occur, thwarting the ability of subnational regulation to achieve green house gas reduction goals, and uncertainty about shuffling will continue to plague interstate power markets.