Does a Regional Greenhouse Gas Policy Make Sense? A Case Study of CO2 Leakage & Emissions Spillover

Abstract

This paper first theoretically studies conditions under which the CO2 leakage would happen using a two-node example. Then, a computational transmission-constrained electricity market model is used to examine the extent of the CO2 leakage and emissions spillover of NOx and SO2. The preliminary results show that when CO2 emissions allowances price is sufficiently high, substantial CO2 leakage could occur. This is accompanied with a significant increase of SO2 and NOx emissions as well. This implies that careful considerations should be given when designing a regional CO2 policy.