Interstate Leakage of Carbon Pollution Abatement

The U.S. Environmental Protection Agency (EPA) proposed state-specific limits on carbon pollution from existing sources in its recent “Clean Power Plan” proposal. These goals reflect the potential of states to reduce carbon emissions by, among other things, reducing demand for electricity generated from fossil fuels via end-use energy efficiency. The interconnected nature of the electricity grid, however, frequently causes the fossil generation reductions associated with these policies to transpire outside the state responsible for their implementation. This report shall refer to these phenomena as “interstate effects.” States implementing the Clean Power Plan (CPP) may only be interested in pursuing energy efficiency programs for compliance purposes if the associated carbon savings can be counted regardless of where they physically occur. However, the proposed rule would require states implementing such policies to ensure that the associated reductions are not double-counted by the state whose generation and emissions levels are affected. Interstate effects could thus influence the development of state compliance strategy. This Master’s Project seeks to develop a deeper understanding of the mechanisms and range of magnitude of interstate effects between power pools, under various levels of energy efficiency. It will demonstrate that up to nearly 40% of total carbon pollution abatement may occur outside the pool implementing the energy efficiency program, and that in such instances, regional cooperation among states may be needed to ensure sufficient signals for them to invest in energy efficiency as a compliance measure.