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Separate Markets for Externalities: Regional versus State-by-State Implementation of the Clean Power Plan
October 12, 2016Poverty and Applied Microeconomics Seminar Series

Speaker: André Trindade is an Assistant Professor at the Graduate School of Economics of the Getulio Vargas Foundation (EPGE-FGV). More »

Abstract: : Are separate markets for an externality that inefficient compared to a single market? We study this question in the context of the Clean Power Plan (CPP) in the U.S. and examine the relative economic efficiency of regional versus state-by-state implementation in the Pennsylvania-New Jersey-Maryland (PJM) Interconnection. We show that the potential negative effects of having separate markets for CO2 are mitigated by the fact that firms participate in a single market for electricity, and will optimally make their investment decisions taking into account the distribution of production and CO2 prices across markets. Despite lacking the “invisible hand" of a single market for CO2, profit-maximizing firms implicitly coordinate separate markets via investment in new capacity.

Paper forthcoming»

Last Updated: Oct 06, 2016

The Poverty and Applied Micro Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers in applied microeconomics from the fields of poverty, human development and public service delivery, agriculture and rural development, political economy, behavioral economics, private sector development, and a range of other fields to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Event Details
  • Date: October 12, 2016
  • Location: MC 3-570
  • Time: 12:30 - 2:00 pm
  • CONTACT: Shweta Mesipam
  • smesipam@worldbank.org

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