The impact of climate policy on fossil fuel consumption: Evidence from the Regional Greenhouse Gas Initiative (RGGI)

Abstract

Climate policies such as carbon taxes or cap-and-trade programs are increasingly used to reduce emissions. In the United States, the Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program is used to reduce emissions. In this paper, I use detailed state-level data to estimate the impact of RGGI on coal and natural gas consumption in the electric-power industry. I find the program directly caused coal and natural gas phase-outs within regulated states. Specifically, the program decreased coal and natural gas consumption for electricity generation by 73% and 30%, respectively, within regulated states. However, in nearby, un-regulated states, I find an increase in natural-gas consumption of 237% and a decrease in coal consumption of 7%. As a result, the program reduced carbon dioxide emissions by 4.8 million tons annually in regulated states, but increased carbon dioxide emissions by 3.5 million tons in unregulated states. I also find the program decreased the efficiency of coal-fired and gas-fired plants, which reduces the program's effectiveness for lowering emissions. However, overall, the program reduced carbon dioxide emissions by 1.3 million tons per year.