The Impact of Renewable Energy Incentives on Carbon Prices in the USA

Many studies examining the price of CO2 have analyzed mostly the EU ETC market and attempted to explain the relationship between energy prices and CO2 emissions. This chapter investigates the dynamics and price determinants of the US CO2 market and aims to capture the decrease in carbon prices (CO2) with increasing incentives to renewable energy sources, in conjunction with economic growth, energy prices, and carbon permits. For this purpose, we analyze the carbon market prices, specific to the US energy markets, since there the carbon prices are low compared to other countries. We assume that the reason is the apparent increase in the incentives toward renewable energy sources. To explore the reasons and justifications, we employ econometric methods on data from the US market. In this context, linear regression, VEC model, and panel data analysis are performed according to their applicability and use. The findings show that CO2 prices are influenced strongly by the renewable portfolio standards as well as carbon allowances and industrial production.