Economic and energy impacts from participation in the regional greenhouse gas initiative: A case study of the State of Maryland

Tradable emissions allowance systems to reduce carbon emissions are increasingly promoted as means to mitigate climate change. This paper briefly reviews the application of such systems at the global, regional, and corporate scales. Given the recent expansion of cap-and-trade systems at the regional level, the paper concentrates on energy and economic implications at that level, using the decision of the State of Maryland, USA, to join the Regional Greenhouse Gas Initiative as an illustration. The paper presents the results of an analysis of the implications for technology choice, generation capacity, energy reliability, and cost to ratepayers of that decision, combining a national electricity market model with a regional model that includes market power and an economic impact model. The results suggest several issues that will be key to the acceptability and effectiveness of cap-and-trade systems for regional climate change mitigation policy, including rules for distribution of allowances and subsidies for energy efficiency programs.