The impact of transmission constraints on the emissions leakage under cap-and-trade program. http://dx.doi.org/10.1016/j.enpol.2012.08.057

Abstract

Several regional cap-and-trade (C&T) programs are considered or implemented in the United States tocontrol greenhouse gas emissions from the power sector. One concern is the possibility of emissionsleakage due to a lack of coherence in the geographic scope of the regional electricity market and theC&T program. Leakage in the context of regulating CO2 emissions is defined as the short-rundisplacement of CO2 emissions from the capped region to other uncapped regions due to the impositionof a regional C&T scheme. However, the presence of transmission congestion could interact withregulations in an unanticipated way to determining whether leakage would occur and its magnitude ifhappens. In this paper, we use a two-node network to study the conditions under which the CO2leakage would happen in a radial network under a C&T program. These conditions are related totransmission capacity, merit order change, and relative production cost between capped and uncappedregions. Since CO2 leakage would likely occur in a radial network during the time when there is surplustransmission capacity, if regional CO2 policies could influence power grid management and operationsdecisions, then there might be space for a better multi-objective coordination.