Wiring America: Market and Environmental Effects of Electricity Grid Expansion

This paper examines the impact of transmission expansion on market power and emissions from fossil fuel generators in wholesale electricity markets. The analysis proceeds by first isolating the impact of transmission expansion on integrating wind energy, followed by the effect of wind integration on markups and emissions from marginal producers. Utilizing the context of a large-scale grid expansion project in Texas, I find annual benefits of approximately $313 million due to lower market power and emissions. These findings underscore the significant economic benefits of transmission expansion, a key policy to achieve decarbonization in the US.