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Environmentally Damaging Electricity Trade

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  • Pineau, Pierre-Olivier
  • de Villemeur, Étienne

Abstract

Electricity trade across regions is often considered welfare enhancing. We show in this paper that this could be reconsidered if environmental externalities are taken into account. We consider two cases where trade is beneficial, before accounting for environmental damages: first, when two regions with the same technology display some demand heterogeneity; second when one region endowed with hydropower arbitrages with its "thermal" neighbor. Our results show that under reasonable demand and supply elasticities, trade comes with an additional environmental cost. This calls for integrating environmental externalities into market reforms when redesigning the electricity sector. Two North American applications illustrate our results: trade between Pennsylvania and New York, and trade between hydro-rich Quebec and New York.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 592.

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Date of creation: Nov 2009
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Publication status: Published in Energy Policy, vol.�38, n°3, Elsevier, mars 2010, p.�1548-1558.
Handle: RePEc:ide:wpaper:21611

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Keywords: Electricity trade; hydropower; greenhouse gas emissions;

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References

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  1. Crampes, C. & Moreaux, M., 2001. "Water resource and power generation," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 975-997, May.
  2. Jean-Thomas Bernard & Frédéric Clavet & Jean-Cléophas Ondo, 2004. "Electricity Production and CO2 Emission Reduction: Dancing to a Different Tune Across the Canada-US Border," Canadian Public Policy, University of Toronto Press, vol. 30(4), pages 401-426, December.
  3. Pineau, Pierre-Olivier, 2008. "Electricity sector integration in West Africa," Energy Policy, Elsevier, vol. 36(1), pages 210-223, January.
  4. Pineau, Pierre-Olivier & Hira, Anil & Froschauer, Karl, 2004. "Measuring international electricity integration: a comparative study of the power systems under the Nordic Council, MERCOSUR, and NAFTA," Energy Policy, Elsevier, vol. 32(13), pages 1457-1475, September.
  5. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
  6. DeCicco, John M. & Bernow, Stephen S. & Beyea, Jan, 1992. "Environmental concerns regarding electric power transmission in North America," Energy Policy, Elsevier, vol. 20(1), pages 30-39, January.
  7. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 1998. "Lectures on International Trade, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522470, December.
  8. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
  9. Etienne BILLETTE DE VILLEMEUR & Annalisa VINELLA, 2008. "Water Misallocation and Environmental Externalities in Electricity Generation," RSCAS Working Papers 2008/27, European University Institute.
  10. Dahl, Carol A., 1993. "A survey of energy demand elasticities in support of the development of the NEMS," MPRA Paper 13962, University Library of Munich, Germany.
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Cited by:
  1. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2013. "Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules," MPRA Paper 55619, University Library of Munich, Germany.
  2. Unteutsch, Michaela, 2014. "Who Benefits from Cooperation? - A Numerical Analysis of Redistribution Effects Resulting from Cooperation in European RES-E Support," EWI Working Papers 2014-2, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  3. de Villemeur, Étienne & Vinella, Annalisa, 2010. "Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact," TSE Working Papers 10-182, Toulouse School of Economics (TSE).
  4. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2012. "Regulation and electricity market integration: When trade introduces inefficiencies," MPRA Paper 41251, University Library of Munich, Germany.
  5. Unteutsch, Michaela, 2014. "Redistribution Effects Resulting from Cross-Border Cooperation in Support for Renewable Energy," EWI Working Papers 2014-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln.

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