New Analysis Shows Competitive Electricity Markets Lead to Higher Rates of Carbon Emissions Reduction
The Energy Choice Coalition (ECC) today released a new report on the environmental benefits of competition in electricity markets. The report, which comes on the heels of COP26, where government leaders across the globe discussed ways to reduce emissions, outlines a proven solution that should be part of the U.S. policy framework to address emissions.
“Our analysis indicates that, across the U.S., regions with competition in their electricity sectors have done a better job at reducing carbon emissions than those regions that are under more monopoly control,” said the report’s lead author, Dr. Joshua D. Rhodes, research associate at The University of Texas at Austin and a managing partner of IdeaSmiths, LLC.
The study included a data-driven analysis to determine whether the existence of competition in electricity markets is correlated with reduced carbon emissions from the power sector. The analysis quantified the actual emissions reduction trajectories of competitive vs. non-competitive regions in the U.S. electricity sector. The report found that regions with more competition in their wholesale electricity sectors, through the Independent System Operators (ISO) construct, result in reduced carbon emissions and carbon emissions intensities faster than non-competitive regions.
“There has been a long-held assumption that a connection between power market participation and emissions reduction exists, but an analysis of this relationship has not been conducted until now,” said Robert Dillon, executive director of the Energy Choice Coalition. “Competition, driven by the market, has been good for lowering costs for consumers, but this analysis makes it clear that competition is also good for reducing negative environmental outcomes.”
The study examined four pathways that provide the mechanisms for which markets can result in lower carbon emissions:
Markets promote innovation and new technology adoption.
Markets favor low-cost resources.
Market designs can include environmental mechanisms to address externalities.
Markets better reflect consumer preferences.
Comparing the seven Independent System Operators (ISO) regions of the U.S. with the non-ISO regions, the analysis found that:
ISO regions have reduced their power sector CO2 emissions by about 35% from 2005 levels, while non-ISO regions have reduced their power-sector CO2 emissions by about 27% over the same period.
Furthermore, ISO regions with more competitively owned generation, such as ISONE, NYISO, and PJM, generally led with deeper CO2 emissions reductions, with 61%, 56%, and 41%, respectively.
ISO regions have seen lower overall electricity growth and have reduced their CO2 emissions intensity of electricity (tons/MWh) by about 39% from 2005 levels, whereas non-ISO regions have reduced their emissions intensity by about 32%.
ISO regions deployed almost 80% of all utility-scale renewable generation capacity, despite only accounting for about 67% of all existing power plant capacity of all types.
ISO regions have seen stronger growth in distributed solar PV, increasing by about 214% versus non-ISO regions at 199%, since the U.S. Energy Information Administration began keeping track in 2014.
ISO regions have seen stronger growth in distributed solar PV, increasing by about 214% versus non-ISO regions at 199%, since the U.S. Energy Information Administration began keeping track in 2014.
The analysis was funded by the Energy Choice Coalition and conducted by Dr. Joshua D. Rhodes, Research Associate at The University of Texas at Austin and a Managing Partner of IdeaSmiths LLC; Dr. Lynne Kiesling, Research Professor in the School of Engineering, Design and Computing at the University of Colorado-Denver, and Co-Director of the Institute for Regulatory Law & Economics; Dr. F. Todd Davidson, Assistant Professor in the Department of Civil & Mechanical Engineering, United States Military Academy and a Managing Partner of IdeaSmiths LLC; and Dr. Michael E. Webber, Josey Centennial Professor in Energy Resources at The University of Texas at Austin, a Managing Partner of IdeaSmiths LLC, and CTO of Energy Impact Partners.
