With the growing concern about the effects of climate change, various policies have been proposed or implemented in the United States to limit its greenhouse gas emissions. For example, in 2015, the Obama government has proposed Clean Power Plan (CPP), aiming to reduce carbon pollution by shifting the electric power sector toward cleaner energy sources. This is coupled with increased attention by research communities, government, and the power sector on exploring resilience options and adaptation measures to climate change impacts. In order to implement cost-effective resilience options, it is important for the regional planner and policymakers to understand not only the local economic impacts of climate-change-induced hazards, but also the spillover effect to other sectors and regions.

The thesis focuses on two main themes. The first theme involves examining two types of emission trading programs considered under the CPP: a mass-based cap-and-trade (C&T) program and a performance-based trading program. While a mass-based program sets a total emission cap for a region, a performance-based program under the CPP relies on trading the emission rate credits (ERCs), which represent an equivalent MWh of energy generated from or saved by zero associated CO2 emissions, to reduce emission costs. The proposed research examines the theoretical properties of the performance-based policy and compares its market performance to a traditional mass-based C&T program using bottom-up simulation models that account for transmission and technology heterogeneity. The second theme entails developing a top-down computable general equilibrium (CGE) model with bilateral commodity trade flow to investigate the regional economic impacts of climate-change-induced extreme weather events, such as sea-level rise, with a focus on natural gas sector in the northern California region.

Prosumers, with the ability to act both as a supplier and a consumer in a power market, have received considerable attention recently. Having distributed energy resources, their capability to operate in an isolated mode, separated from the main grid, has also been promoted as a vital option to enhance the power system's resilience. One emerging concern is the prosumer's ability to manipulate the power market as a buyer or as a seller. This thesis vets the outcomes of a power market in presence of strategic prosumers and formulates electricity markets in different frameworks depending on the prosumer's strategy to obtain the equilibria representing the market outcome.

This thesis posits a situation in which a strategic prosumer owns a renewable unit with variant output and a dispatchable backup unit, and participates in a power market following a price-taker, quantity-based, or Stackelberg strategy. The prosumer is assumed to maximize its benefit by deciding amount of power to buy from or sell into the main grid, amount of renewable power to forego consumption, and amount of power to produce from backup unit. The interaction of prosumers and the main grid is modeled through shifting the residual supply curve in the wholesale market, thereby avoiding the possible numerical issues when aggregating their demand horizontally with consumers. The model is applied to a case study of the IEEE 24-bus RTS as an illustrative example. Prosumers in the market are also subject to uncertain renewable output and, as they participate in the day-ahead market, decide how much energy to consume, sell, or purchase, considering the potential imbalance due to uncertain output. The question of prosumer's risk preferences, taking into account the uncertainty in its renewable output, is investigated and the dynamics between prosumer's risk decisions and its implications for the prosumer's profit maximization are examined in a chance-constrained framework.

This thesis illustrates power market outcomes in presence of strategic prosumers following price-taker, quantity-based, and Stackelberg strategies exercised by the prosumer and shows existence of market-clearing equilibria in the case of perfect and imperfect competition and demonstrate that the prosumer's position in the market does not depend on its strategy along with the fact that the prosumer is able to attain higher pay-off in the price-taker case compared to the quantity-based strategy. This thesis also shows the impact of prosumer's Stackelberg strategy on rent distribution and price formation in the marketplace in a chance-constrained framework to account for uncertainty of its renewable output. Finally, the thesis investigates prosumer risk attitudes and quantifies the impact of renewable output uncertainty and imbalance prices on prosumer's risk preferences.

Among the most contentious elements of the design of cap-and-trade systems for emissions trading is the allocation or assignment of the emissions credits themselves. Policy-makers usually try to satisfy a range of goals through the allocation process, including easing the transition costs for high-emissions firms, reducing leakage to unregulated regions, and mitigating the impact of the regulations on product prices such as electricity. In this paper we develop a detailed representation of the US western electricity market to assess the potential impacts of various allocation proposals. Several proposals involve the “contingent” allocation of permits, where the allocation is tied to the output, or input use, of plants. These allocation proposals are designed with the goals of limiting the pass-through of carbon costs to product prices, mitigating leakage, and of mitigating the costs to high-emissions firms. However, contingent allocation can greatly inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms. Rather than mitigating the impact on high carbon producers, the net operating profit of such firms can actually be lower under contingent allocation than under auctioning. This is due to the fact that product prices (and therefore revenues) are lower under contingent allocation, but overall compliance costs are relatively comparable between auctioning and contingent allocation. Thus, the anticipated benefits from contingent allocation are greatly reduced and further distortions are introduced into the trading system.

In response to Assembly Bill 32, the State of California is considering three types of carbon emissions trading programs for the electric power sector: load-based, source-based, and first-seller. They differ in terms of their point-of-regulation, and in whether in-state-to-out-of-state and out-of-state-to-in-state electricity sales are regulated. In this paper, we formulate a market equilibrium model for each of the three approaches, considering power markets, transmission limitations, and emissions trading, and making the simplifying assumption of pure bilateral markets. We analyze the properties of their solutions and show the equivalence of load-based, first-seller and source-based approaches, when power sales in both directions are regulated under the cap. A numeric example illustrates the emissions and economic implications of the models. In the simulated cases, "leakage" eliminates most of the emissions reductions that the regulations attempt to impose. Further, "contract reshuffling" occurs to such an extent that all the apparent emissions reductions resulting from changes in sources of imported power are illusory.