Regulation and electricity market integration: When trade introduces inefficiencies
Electricity 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 everywhere 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.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Pineau, Pierre-Olivier, 2008. "Electricity sector integration in West Africa," Energy Policy, Elsevier, vol. 36(1), pages 210-223, January.
- 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.
- 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.
- 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," Discussion Papers 462, Statistics Norway, Research Department.
- Pineau, Pierre-Olivier & de Villemeur, Étienne, 2009.
"Environmentally Damaging Electricity Trade,"
TSE Working Papers
09-118, Toulouse School of Economics (TSE).
- 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.
- Vincent Anesi & Philippe De Donder, 2011. "Secondary issues and party politics: an application to environmental policy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 36(3), pages 519-546, April.
- Sandro Brusco & Hugo Hopenhayn, 2007.
"Deregulation with consensus,"
Springer;Society for the Advancement of Economic Theory (SAET), 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 281-297, June.
- Benjamin, Richard, 2007. "Principles for Interregional Transmission Expansion," The Electricity Journal, Elsevier, vol. 20(8), pages 36-47, October.
- 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.
- Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523.
- Aune,F.R. & Golombek,R. & Kittelsen,S.A.C. & ..., 2001.
"Liberalising the energy markets of Western Europe : a computable equilibrium model approach,"
14/2001, Oslo University, Department of Economics.
- Finn Roar Aune & Rolf Golombek & Sverre Kittelsen & Knut Einar Rosendahl, 2004. "Liberalizing the energy markets of Western Europe - a computable equilibrium model approach," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2137-2149.
- Anesi, Vincent, 2006. "Earmarked taxation and political competition," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 679-701, May.
- 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.
- 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.
- 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.
- 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.
- Hooper, Elizabeth & Medvedev, Andrei, 2009. "Electrifying integration: Electricity production and the South East Europe regional energy market," Utilities Policy, Elsevier, vol. 17(1), pages 24-33, March.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:2:p:529-535. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.