Regulation and electricity market integration: When trade introduces inefficiencies
AbstractElectricity markets vary greatly across jurisdictions, in terms of regulatory institutions, cost levels and environmental impacts. Integrating such different markets can lead to significant changes. This paper considers two jurisdictions - one with a regulated monopoly selling at average cost and one with a competitive market - and compares three different institutional regimes: autarky, a mixed-market structure with trade and a fully integrated market, where electricity is sold at marginal cost. We show that, in the second regime, the regulated monopoly always exports toward the jurisdiction pricing at marginal cost, up to inducing productive inefficiencies. By contrast, a shift from the second to the third regime, i.e. "integrated deregulation" yields a decrease in overall consumption. We identify the exact conditions under which the shift from one regime to the other results in environmental gains.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41251.
Date of creation: 2012
Date of revision:
Market Integration; Regulation; Electricity Trade; Environmental Impacts;
Other versions of this item:
- Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2012. "Regulation and electricity market integration: When trade introduces inefficiencies," Energy Economics, Elsevier, vol. 34(2), pages 529-535.
- F15 - International Economics - - Trade - - - Economic Integration
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-22 (All new papers)
- NEP-COM-2012-09-22 (Industrial Competition)
- NEP-CWA-2012-09-22 (Central & Western Asia)
- NEP-ENE-2012-09-22 (Energy Economics)
- NEP-ENV-2012-09-22 (Environmental Economics)
- NEP-INT-2012-09-22 (International Trade)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Torstein Bye & Erling Holmøy & Kim Massey Heide, 2006.
"Removing policy based comparative advantage for energy intensive production. Necessary adjustments of the real exchange rate and industry structure,"
462, Research Department of Statistics Norway.
- Torstein Bye & Erling Erling Holmoy, 2010. "Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 177-198.
- Sandro Brusco & Hugo Hopenhayn, 2007.
"Deregulation with consensus,"
Springer, vol. 32(1), pages 223-250, July.
- von der Fehr, Nils-Henrik M & Sandsbraten, Lise, 1997. " Water on Fire: Gains from Electricity Trade," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 281-97, June.
- Vincent Anesi & Philippe De Donder, 2011.
"Secondary issues and party politics: an application to environmental policy,"
Social Choice and Welfare,
Springer, vol. 36(3), pages 519-546, April.
- Anesi, Vincent & De Donder, Philippe, 2008. "Secondary Issues and Party Politics: An Application to Environmental Policy," CEPR Discussion Papers 6774, C.E.P.R. Discussion Papers.
- Finn Roar Aune & Rolf Golombek & Sverre Kittelsen & Knut Einar Rosendahl, 2004.
"Liberalizing the energy markets of Western Europe - a computable equilibrium model approach,"
Taylor & Francis Journals, vol. 36(19), pages 2137-2149.
- Aune,F.R. & Golombek,R. & Kittelsen,S.A.C. & ..., 2001. "Liberalising the energy markets of Western Europe : a computable equilibrium model approach," Memorandum 14/2001, Oslo University, Department of Economics.
- Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
- Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2010.
"Environmentally damaging electricity trade,"
Elsevier, vol. 38(3), pages 1548-1558, March.
- Pineau, Pierre-Olivier & de Villemeur, Étienne, 2009. "Environmentally Damaging Electricity Trade," TSE Working Papers 09-118, Toulouse School of Economics (TSE).
- Pineau, Pierre-Olivier & de Villemeur, Étienne, 2009. "Environmentally Damaging Electricity Trade," IDEI Working Papers 592, Institut d'Économie Industrielle (IDEI), Toulouse.
- Hooper, Elizabeth & Medvedev, Andrei, 2009.
"Electrifying integration: Electricity production and the South East Europe regional energy market,"
Elsevier, vol. 17(1), pages 24-33, March.
- Hooper, E. & Medvedev, A., 2008. "Electrifying Integration: Electricity Production And The South-East Europe Regional Energy Market," Cambridge Working Papers in Economics 0804, Faculty of Economics, University of Cambridge.
- Paul L. Joskow, 2008. "Lessons Learned from Electricity Market Liberalization," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 9-42.
- Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 167-186, March.
- Pineau, Pierre-Olivier, 2008. "Electricity sector integration in West Africa," Energy Policy, Elsevier, vol. 36(1), pages 210-223, January.
- Benjamin, Richard, 2007. "Principles for Interregional Transmission Expansion," The Electricity Journal, Elsevier, vol. 20(8), pages 36-47, October.
- Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, January.
- Anesi, Vincent, 2006. "Earmarked taxation and political competition," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 679-701, May.
- Bernard, Jean-Thomas & Chatel, Josee, 1985. "The application of marginal cost pricing principles to a hydro-electric system : The case of hydro-Quebec," Resources and Energy, Elsevier, vol. 7(4), pages 353-375, December.
- Sauma, Enzo E. & Oren, Shmuel S., 2009. "Do generation firms in restructured electricity markets have incentives to support social-welfare-improving transmission investments?," Energy Economics, Elsevier, vol. 31(5), pages 676-689, September.
- Chen, Yihsu, 2009. "Does a regional greenhouse gas policy make sense? A case study of carbon leakage and emissions spillover," Energy Economics, Elsevier, vol. 31(5), pages 667-675, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.