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Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance

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  • Stephen P. Holland
  • Erin T. Mansur

Abstract

Real-time pricing (RTP) of electricity would improve allocative efficiency and limit wholesalers' market power. Conventional wisdom claims that RTP provides additional environmental benefits. This paper argues that RTP will reduce the variance, both within- and across-days, in the quantity of electricity demanded. We estimate the short-run impacts of this reduction on SO2, NOx, and CO2 emissions. Reducing variance decreases emissions in regions where peak demand is met more by oil-fired capacity than by hydropower, such as the Mid-Atlantic. However, reducing variance increases emissions in more US regions, namely those with more hydropower like the West. The effects are relatively small.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13508.

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Date of creation: Oct 2007
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Publication status: published as Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 550-561, 04.
Handle: RePEc:nbr:nberwo:13508

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  1. Herriges, Joseph A, et al, 1993. "The Response of Industrial Customers to Electric Rates Based upon Dynamic Marginal Costs," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 446-54, August.
  2. Severin Borenstein & Stephen P. Holland, 2003. "On the Efficiency of Competitive Electricity Markets With Time-Invariant Retail Prices," NBER Working Papers 9922, National Bureau of Economic Research, Inc.
  3. Stephen P. Holland & Erin T. Mansur, 2006. "The Short-Run Effects of Time-Varying Prices in Competitive Electricity Markets," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 127-156.
  4. Caves, Douglas W. & Christensen, Laurits R., 1980. "Econometric analysis of residential time-of-use electricity pricing experiments," Journal of Econometrics, Elsevier, vol. 14(3), pages 287-306, December.
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Cited by:
  1. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
  2. Edward L. Glaeser & Matthew E. Kahn, 2008. "The Greenness of Cities: Carbon Dioxide Emissions and Urban Development," NBER Working Papers 14238, National Bureau of Economic Research, Inc.
  3. Kopsakangas Savolainen, Maria & Svento, Rauli, 2012. "Real-Time Pricing in the Nordic Power markets," Energy Economics, Elsevier, vol. 34(4), pages 1131-1142.
  4. Carson, Richard T. & Novan, Kevin, 2013. "The private and social economics of bulk electricity storage," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 404-423.
  5. Matthew E. Kahn & Erin T. Mansur, 2010. "How Do Energy Prices, and Labor and Environmental Regulations Affect Local Manufacturing Employment Dynamics? A Regression Discontinuity Approach," NBER Working Papers 16538, National Bureau of Economic Research, Inc.
  6. De Castro, Luciano & Dutra, Joisa, 2013. "Paying for the smart grid," Energy Economics, Elsevier, vol. 40(S1), pages S74-S84.
  7. Joseph Cullen, 2013. "Measuring the Environmental Benefits of Wind-Generated Electricity," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 107-33, November.
  8. Stephen P. Holland, 2011. "Spillovers from Climate Policy to Other Pollutants," NBER Chapters, in: The Design and Implementation of U.S. Climate Policy, pages 79-90 National Bureau of Economic Research, Inc.
  9. Erin Mansur, 2013. "Prices versus quantities: environmental regulation and imperfect competition," Journal of Regulatory Economics, Springer, vol. 44(1), pages 80-102, August.
  10. Rodrigues, Renato & Linares, Pedro & Gómez-Plana, Antonio G., 2011. "A CGE Assessment of the Impacts on Electricity Production and CO2 Emissions of a Residential Demand Response Program in Spain/Impacto sobre la producción eléctrica y emisiones de CO2 de un programa de," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 29, pages 665 (36 pag, Agosto.
  11. Burtraw, Dallas & Palmer, Karen, 2005. "The Environmental Impacts of Electricity Restructuring: Looking Back and Looking Forward," Discussion Papers, Resources For the Future dp-05-07, Resources For the Future.
  12. James Cochell & Peter Schwarz & Thomas Taylor, 2012. "Using real-time electricity data to estimate response to time-of-use and flat rates: an application to emissions," Journal of Regulatory Economics, Springer, vol. 42(2), pages 135-158, October.
  13. Erin T. Mansur, 2007. "Measuring Welfare in Restructured Electricity Markets," NBER Working Papers 13509, National Bureau of Economic Research, Inc.
  14. Stephen P. Holland, 2010. "Spillovers from Climate Policy," NBER Working Papers 16158, National Bureau of Economic Research, Inc.
  15. Adela Conchado & Pedro Linares, 2010. "The Economic Impact of Demand-Response Programs on Power Systems. A survey of the State of the Art," Working Papers 02-2010, Economics for Energy.
  16. Jonas Egerer & Wolf-Peter Schill, 2014. "Power System Transformation toward Renewables: Investment Scenarios for Germany," Discussion Papers of DIW Berlin 1402, DIW Berlin, German Institute for Economic Research.
  17. Hunt Allcott, 2012. "The Smart Grid, Entry, and Imperfect Competition in Electricity Markets," NBER Working Papers 18071, National Bureau of Economic Research, Inc.

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