Title: Integrating electricity markets: Impacts of increasing trade on prices and emissions in the western United States,
Abstract: This paper analyzes the market impacts of expanding California's centralized
electricity market across the western United States and provides the first
statistical assessment of this issue. Using market data from 2015-2018, I
estimate the short-term effects of increasing regional electricity trade
between California and neighboring states on prices, emissions, and generation.
Consistent with economic theory, I find negative price impacts from regional
trade, with each 1 gigawatt-hour (GWh) increase in California electricity
imports associated with an average 0.15 dollar decrease in CAISO price. The
price effect yields significant consumer savings well in excess of
implementation costs required to set up a regional market. I find a short-term
decrease in California carbon dioxide emissions associated with trading that is
partially offset by increased emissions in neighboring regions. Specifically,
each 1 GWh increase in regional trade is associated with a net 70-ton average
decrease in CO2 emissions across the western U.S. A small amount of increased
SO2 and NOx emissions are also observed in neighboring states associated with
increased exports to California. This implies a small portion (less than 10
percent) of electricity exports to California are supplied by coal generation.
This study identifies substantial short-term monetary benefits from market
regionalization for California consumers. It also shows that California's cap
and trade program is relatively effective in limiting the carbon content of
imported electricity, even absent a regional cap on CO2. The conclusions
suggest efforts to reduce trade barriers should move forward in parallel with
strong greenhouse gas policies that cap emissions levels across the market
region.