The impact of climate policy on fossil fuel consumption: Evidence from the Regional Greenhouse Gas Initiative (RGGI)

Climate policies such as carbon taxes or cap-and-trade programs are increasingly used to reduce emissions. In the United States, the Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program is used to reduce emissions. In this paper, I use detailed state-level data to estimate the impact of RGGI on coal and natural gas consumption in the electric-power industry. I find the program directly caused coal and natural gas phase-outs within regulated states. Specifically, the program decreased coal and natural gas consumption for electricity generation by 73% and 30%, respectively, within regulated states. However, in nearby, un-regulated states, I find an increase in natural-gas consumption of 237% and a decrease in coal consumption of 7%. As a result, the program reduced carbon dioxide emissions by 4.8 million tons annually in regulated states, but increased carbon dioxide emissions by 3.5 million tons in unregulated states. I also find the program decreased the efficiency of coal-fired and gas-fired plants, which reduces the program's effectiveness for lowering emissions. However, overall, the program reduced carbon dioxide emissions by 1.3 million tons per year. •A long-term evaluation of the effectiveness of RGGI on the emissions reduction.•A more accurate estimation of the reduced emissions caused by RGGI.•RGGI has caused significant emissions reduction within regulated states and emissions leakage in the nearby un-regulated states.