This paper analyzes the market impacts of expanding California's centralized electricity market across the western United States and provides the first statistical assessment of this issue. Using market data from 2015-2018, I estimate the short-term effects of increasing regional electricity trade between California and neighboring states on prices, emissions, and generation. Consistent with economic theory, I find negative price impacts from regional trade, with each 1 gigawatt-hour (GWh) increase in California electricity imports associated with an average 0.15 dollar decrease in CAISO price. The price effect yields significant consumer savings well in excess of implementation costs required to set up a regional market. I find a short-term decrease in California carbon dioxide emissions associated with trading that is partially offset by increased emissions in neighboring regions. Specifically, each 1 GWh increase in regional trade is associated with a net 70-ton average decrease in CO2 emissions across the western U.S. A small amount of increased SO2 and NOx emissions are also observed in neighboring states associated with increased exports to California. This implies a small portion (less than 10 percent) of electricity exports to California are supplied by coal generation. This study identifies substantial short-term monetary benefits from market regionalization for California consumers. It also shows that California's cap and trade program is relatively effective in limiting the carbon content of imported electricity, even absent a regional cap on CO2. The conclusions suggest efforts to reduce trade barriers should move forward in parallel with strong greenhouse gas policies that cap emissions levels across the market region.
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