Related publications and work in progress

C. Lo Prete, A. Tyagi and Q. Xu (2024). “California’s cap-and-trade program and emission leakage in the Western Interconnection: comparing econometric and partial equilibrium model estimates”. Journal of the Association of Environmental and Resource Economists 11(2), 359-402.

Abstract: We compare the effects of California’s AB 32 cap-and-trade program on leakage in the electricity sector using two methods: a simulation-based partial equilibrium model that accounts for details of policy implementation and is parameterized using market data; and an econometric model applying a quasi-experimental design with matching and a robust inference method that does not require parallel trends to hold exactly. Based on the estimated shifts in electricity generation, we infer CO₂ emission leakage predictions in 2013 and 2016. The comparison allows us to identify critical assumptions driving the simulation results, and to benchmark the empirical results in a complex policy setting where threats to identification undermine attempts at statistical inference. Over the study period, we find significant leakage potential ex ante and empirical evidence that is consistent with some resource shuffling ex post. Limiting the ability of electricity importers to claim the default emission factor may reduce leakage risks.

S. Blumsack, C. Lo Prete, U.V. Shanbhag, M. Webster (2018). “Analysis of state policy interactions with electricity markets in the context of uneconomic existing resources: a critical assessment of the literature”. Report to PJM Interconnection, 1-53.

C. Lo Prete and C.S. Norman (2013). “Rockets and feathers in CO₂-power markets? New evidence from the second phase of the EU ETS”. Energy Economics 36, 312-321.

Abstract: This paper examines the possibility of asymmetric transmission of CO₂ prices to electricity futures prices in the second phase of the European Emission Trading Scheme. We would like to assess whether output prices tend to respond more quickly to input price increases than decreases: this phenomenon is known as “rockets and feathers” in the literature. Compared to Zachmann and von Hirschhausen (2008), who carried out a similar analysis for Germany in the first phase of the Emission Trading Scheme with data from 2005 to 2006, our study spans a longer timeframe (July 2007–June 2010), with a presumably more mature permit market, and includes three additional European countries (France, Belgium and the Netherlands). Results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in CO₂ allowance and fuel markets.