Full Title: Markets Matter: Expect a Bumpy Ride on the Road to Reduced CO2 Emissions
Author(s): Cliff Hamal
Publisher(s): Navigant
Publication Date: 5/2014

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The Environmental Protection Agency (EPA) is currently working on guidelines to limit CO2 emissions from existing electric power stations and is scheduled to release them in draft form by early June of this year. There is considerable uncertainty over the extent of reductions EPA will seek, which will have significant implications for the environment and the electricity industry. Receiving less attention are the significant long-term implications of the structure of those guidelines. In particular, there are reasons to suspect that EPA guidelines will not adopt approaches that economists have long recognized as providing for the most efficient outcomes, and thus allow reductions to be achieved at the lowest cost. Another critical issue in considering the outcome of such emission guidelines will be the structure of the electricity industry. The U.S. electricity industry is a patchwork of different market structures, some of which create additional problems in attempts to deal efficiently with emission reductions. This report explores the interplay between potential inefficient emission reduction guidelines and the problems that might arise in applying such guidelines in the varied electric market structures across the country. The challenges of these problems should be of concern to anyone dealing with developing rules and guidelines, or attempting to respond to such requirements as market participants.