IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v254y2025ics016517652500271x.html

A note on how demand uncertainty matters for emissions regulation in energy markets

Author

Listed:
  • Gomez-Trejos, Felipe

Abstract

I quantitatively assess the dynamic implications of uncertainty about future demand for relative welfare consequences of carbon taxes and cap-and-trade regulation within the context of the U.S. electricity sector. Over a wide range of policy-relevant abatement targets, carbon taxes outperform cap-and-trade in terms of welfare implications.

Suggested Citation

  • Gomez-Trejos, Felipe, 2025. "A note on how demand uncertainty matters for emissions regulation in energy markets," Economics Letters, Elsevier, vol. 254(C).
    • Handle: RePEc:eee:ecolet:v:254:y:2025:i:c:s016517652500271x
    DOI: 10.1016/j.econlet.2025.112434
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016517652500271X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2025.112434?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. James Bushnell & Kevin Novan, 2021. "Setting with the Sun: The Impacts of Renewable Energy on Conventional Generation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(4), pages 759-796.
    2. Schaeffer, Roberto & Szklo, Alexandre Salem & Pereira de Lucena, André Frossard & Moreira Cesar Borba, Bruno Soares & Pupo Nogueira, Larissa Pinheiro & Fleming, Fernanda Pereira & Troccoli, Alberto & , 2012. "Energy sector vulnerability to climate change: A review," Energy, Elsevier, vol. 38(1), pages 1-12.
    3. Severin Borenstein & James Bushnell & Frank A. Wolak & Matthew Zaragoza-Watkins, 2019. "Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design," American Economic Review, American Economic Association, vol. 109(11), pages 3953-3977, November.
    4. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gomez-Trejos, Felipe, 2025. "Dynamic welfare implications of market-based climate policy under demand uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 238(C).
    2. Robert W. Hahn & Robert D. Metcalfe, 2021. "Efficiency and Equity Impacts of Energy Subsidies," American Economic Review, American Economic Association, vol. 111(5), pages 1658-1688, May.
    3. Xing, Xiaoyun & Xu, Zihan & Wang, Xiuya & Guo, Kun, 2025. "Climate risk performance and tail risk contagion in energy stock markets: Evidence from China," Research in International Business and Finance, Elsevier, vol. 79(C).
    4. Kellogg, Ryan, 2020. "Output and attribute-based carbon regulation under uncertainty," Journal of Public Economics, Elsevier, vol. 190(C).
    5. Borenstein, Severin & Bushnell, James, 2021. "Issues, Questions, and a Research Agenda for the Role of Pricing in Residential Electrification," RFF Working Paper Series 21-35, Resources for the Future.
    6. Hindriks, Jean & Serse, Valerio, 2022. "The incidence of VAT reforms in electricity markets: Evidence from Belgium," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    7. Liu, Chang & Lin, Boqiang, 2020. "Is increasing-block electricity pricing effectively carried out in China? A case study in Shanghai and Shenzhen," Energy Policy, Elsevier, vol. 138(C).
    8. Burlig, Fiona PhD & Bushnell, James PhD & Rapson, David PhD & Wolfram, Catherine PhD, 2020. "Supercharged? Electricity Demand and the Electrification of Transportation in California," Institute of Transportation Studies, Working Paper Series qt9t62s2sd, Institute of Transportation Studies, UC Davis.
    9. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2025. "Assessing the Energy-Efficiency Gap," World Scientific Book Chapters, in: Economics of Environment, Climate Change, and Wine Selected Papers of Robert N Stavins Volume 3 (2011–2023), chapter 4, pages 53-118, World Scientific Publishing Co. Pte. Ltd..
    10. Simshauser, P. & Shellshear, E., 2026. "Renewable Energy Zones: Generator Cost Allocation Under Uncertainty," Cambridge Working Papers in Economics 2524, Faculty of Economics, University of Cambridge.
    11. Nathalie Spittler & Ganna Gladkykh & Arnaud Diemer & Brynhildur Davidsdottir, 2019. "Understanding the Current Energy Paradigm and Energy System Models for More Sustainable Energy System Development," Post-Print hal-02127724, HAL.
    12. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    13. Yagi, Chihiro & Takeuchi, Kenji, 2024. "Electricity storage or transmission? Comparing social welfare between electricity arbitrages," Energy Economics, Elsevier, vol. 140(C).
    14. Bradley T. Shapiro, 2020. "Advertising in Health Insurance Markets," Marketing Science, INFORMS, vol. 39(3), pages 587-611, May.
    15. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    16. Heijmans, Roweno J.R.K. & Engström, Max, 2024. "Time Horizons and Emissions Trading," Discussion Papers 2024/2, Norwegian School of Economics, Department of Business and Management Science.
    17. Kitchens, Carl T. & Jaworski, Taylor, 2017. "Ownership and the price of residential electricity: Evidence from the United States, 1935–1940," Explorations in Economic History, Elsevier, vol. 64(C), pages 53-61.
    18. Keleş, S. & Bilgen, S., 2012. "Renewable energy sources in Turkey for climate change mitigation and energy sustainability," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(7), pages 5199-5206.
    19. Palmer, Karen & Paul, Anthony, 2015. "A Primer on Comprehensive Policy Options for States to Comply with the Clean Power Plan," RFF Working Paper Series dp-15-15, Resources for the Future.
    20. Kocourek, Pavel & Steiner, Jakub & Stewart, Colin, 2024. "Boundedly rational demand," Theoretical Economics, Econometric Society, vol. 19(4), November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:254:y:2025:i:c:s016517652500271x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.