Web Appendix to "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage"

This appendix provides additional details and results to support the main simulation results discussed in the paper. First, details regarding how the numerical simulations where carried out under alternative assumptions about …rm conduct in California’s wholesale electricity market are provided. Results from simulations that assume elasticversus perfectly inelasticdemand are summarized. Finally, a list of out-of-state generation owned and operated by California load serving entities is provided. 1 Simulation Methods The single-stage game The single-stage Cournot model is modi…ed to re‡ect the realities of the California market. Firms’marginal costs are now assumed to be increasing with production (versus constant). Unit-level capacity constraints and transmission constraints are explicitly represented. Supply curves for the Paci…c Northwest (i.e. Washington and Oregon) and Southwest (i.e. Arizona, Nevada, New Mexico, and Utah) are constructed using dependable capacity measures and marginal costs of all generation located in these states that is not owned by California utilities. Least cost dispatch is assumed in the PNW and SW regions.1 Generation not required to serve native load is assumed to be available for export to California, subject to transmission constraints. Transmission capacity is allocated …rst to …rm imports, and then to the least costly out-of-state generation that is not needed to serve native load. The competitive fringe includes all non-strategic instate generation and all non-strategic, out-of-state generation that can be accommodated by existing transmission capacity. The out-of-state units that help comprise this fringe vary from hour to hour with loads in neighboring states. In each hour, the residual demand curve faced by the strategic …rms is constructed by subtracting fringe supply from California demand in that hour. For each of three policy regimes (i.e. no environmental regulation, complete regulation, and incomplete regulation) 8784 hourly supply curves are constructed for each of the eleven strategic …rms supplying the California market. The total capacity that the i …rm has available in hour t is comprised of the in-state generation and …rm imports owned by the …rm, plus any out-of-state generation owned by the …rm that is not required to supply native 1With the exception of Oregon (where the vast majority of generating capacity is hydro), all of the states surrounding California have elected not to restructure their electricity industries. Consequently, least cost dispatch in these states is a reasonable assumption.