Reliability in the U.S. electricity industry under new environmental regulations

Abstract

Implementation of new environmental regulations of sulfur dioxide, nitrogen oxides and mercury in the U.S. electricity industry has triggered concerns about system reliability. Results from a national electricity market simulation model suggest that these regulations lead to little change in generation capacity and are unlikely to create the shock to the system that some anticipate. Large costs of investments in pollution controls are partially offset by a lower cost burden for tradable emissions allowances. The combined effects result in a 1 percent increase in national average retail electricity prices. In 2020 producers pay approximately 30 percent and consumers pay approximately 70 percent of the total costs of the regulations, which equal between $6.6 and $7.1 billion in 2020 (real 2009$). The regulation leads to substantial reductions in emissions of mercury and sulfur dioxide from the electricity sector.