Climate change policy and its effect on market power in the gas market
AbstractThe European Emissions Trading Scheme (ETS) limits CO2 emissions from covered sectors, especially electricity until December 2007, after which a new set of Allowances will be issued. The paper demonstrates that the impact of controlling the quantity rather than the price of carbon is to reduce the elasticity of demand for gas, amplifying the market power of gas suppliers, and also amplifying the impact of gas price increases on the price of electricity. A rough estimate using just British data suggests that this could increase gas market power by 50%.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0606.
Date of creation: Feb 2006
Date of revision:
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Web page: http://www.econ.cam.ac.uk/index.htm
Climate change; emissions trading; market power; gas; quotas vs taxes;
Other versions of this item:
- David M. Newbery, 2008. "Climate Change Policy and Its Effect on Market Power in the Gas Market," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 727-751, 06.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-19 (All new papers)
- NEP-COM-2006-02-19 (Industrial Competition)
- NEP-ENE-2006-02-19 (Energy Economics)
- NEP-ENV-2006-02-19 (Environmental Economics)
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