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Sustainable Transmission Planning in Imperfectly Competitive Electricity Industries: Balancing economic efficiency and environmental outcomes

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  • Afzal S. SIDDIQUI
  • TANAKA Makoto
  • Yihsu CHEN

Abstract

We explore the role of a transmission system operator (TSO) that builds a transmission line to accommodate renewable energy while attempting to lower emissions. A TSO in a deregulated electricity industry can only indirectly influence outcomes through its choice of the transmission line capacity. Via a bi-level model, we show that this results in less transmission capacity and with limited emissions control in a perfectly competitive industry vis-a-vis a benchmark centrally planned system. Surprisingly, a carbon tax on industry leads to a perfect alignment of incentives and maximized social welfare only under perfect competition. By contrast, a carbon tax actually lowers social welfare under a Cournot oligopoly as the resulting reduction in consumption facilitates the further exercise of market power.

Suggested Citation

  • Afzal S. SIDDIQUI & TANAKA Makoto & Yihsu CHEN, 2017. "Sustainable Transmission Planning in Imperfectly Competitive Electricity Industries: Balancing economic efficiency and environmental outcomes," Discussion papers 17024, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:17024
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    References listed on IDEAS

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