Climate Change Policy and Its Effect on Market Power in the Gas Market
AbstractThe European Emissions Trading Scheme (ETS) limits CO_2 emissions from covered sectors, especially electricity (accounting for about 56%). At EUR 44 billion per annum. the ETS is the largest emissions trading system ever, 40 times larger than US programmes. The article demonstrates that fixing the quantity rather than the price of carbon reduces the price elasticity of demand for gas appreciably, amplifying the market power of gas suppliers, and amplifying the impact of gas price increases on the electricity price. A rough estimate using British data suggests that this could increase the Lerner Index by 50%. (JEL: Q54, Q58, L94) (c) 2008 by the European Economic Association.
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Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 6 (2008)
Issue (Month): 4 (06)
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Other versions of this item:
- Newbery, D., 2006. "Climate change policy and its effect on market power in the gas market," Cambridge Working Papers in Economics 0606, Faculty of Economics, University of Cambridge.
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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