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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.

Suggested Citation

  • Pineau, Pierre-Olivier & de Villemeur, Étienne, 2009. "Environmentally Damaging Electricity Trade," TSE Working Papers 09-118, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:21971
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    References listed on IDEAS

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    Cited by:

    1. Billette de Villemeur, Etienne & Vinella, Annalisa, 2011. "Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact," Utilities Policy, Elsevier, vol. 19(1), pages 20-32, January.
    2. Arina Nikandrova & Jevgenijs Steinbuks, 2017. "Contracting for the second best in dysfunctional electricity markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 41-71, February.
    3. 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 (EWI).
    4. Amor, Mourad Ben & Pineau, Pierre-Olivier & Gaudreault, Caroline & Samson, Réjean, 2011. "Electricity trade and GHG emissions: Assessment of Quebec's hydropower in the Northeastern American market (2006-2008)," Energy Policy, Elsevier, vol. 39(3), pages 1711-1721, March.
    5. Etienne Billette de Villemeur and Pierre-Olivier Pineau, 2016. "Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    6. 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.
    7. 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 (EWI).
    8. Halil Burak Sakal, 2021. "Turkey’s energy trade relations with Europe: The role of institutions and energy market," Energy & Environment, , vol. 32(7), pages 1243-1274, November.

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    Keywords

    Electricity trade; hydropower; greenhouse gas emissions;
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