IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v101y2016icp42-51.html

Cross-border trade in electricity

Author

Listed:
  • Antweiler, Werner

Abstract

This paper develops a novel economic theory of two-way trade in a homogenous good, electricity. In this model of ‘reciprocal load smoothing,’ international trade provides insurance. As electricity demand is stochastic and correlated across jurisdictions, electric utilities can reduce their cost during peak periods by importing cheaper off-peak electricity from neighbouring jurisdictions. Two-way trade emerges in the presence of strongly convex marginal costs. Observed trade between Canadian provinces and US states strongly supports the theoretical model. Reciprocal load smoothing provides an economic rationale for integrating North America's fragmented interconnections into a continental ‘supergrid’ if technological progress in long-distance bulk transmission continues to reduce costs.

Suggested Citation

  • Antweiler, Werner, 2016. "Cross-border trade in electricity," Journal of International Economics, Elsevier, vol. 101(C), pages 42-51.
    • Handle: RePEc:eee:inecon:v:101:y:2016:i:c:p:42-51
    DOI: 10.1016/j.jinteco.2016.03.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199616300423
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2016.03.007?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. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. Ambec, Stefan & Crampes, Claude, 2012. "Electricity provision with intermittent sources of energy," Resource and Energy Economics, Elsevier, vol. 34(3), pages 319-336.
    5. Andrew Kleit & James Reitzes, 2008. "The effectiveness of FERC’s transmission policy: is transmission used efficiently and when is it scarce?," Journal of Regulatory Economics, Springer, vol. 34(1), pages 1-26, August.
    6. Erin T. Mansur, 2008. "Measuring Welfare in Restructured Electricity Markets," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 369-386, May.
    7. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    8. Blonigen, Bruce A. & Wilson, Wesley W., 2010. "Foreign subsidization and excess capacity," Journal of International Economics, Elsevier, vol. 80(2), pages 200-211, March.
    9. Heymi Bahar & Jehan Sauvage, 2013. "Cross-Border Trade in Electricity and the Development of Renewables-Based Electric Power: Lessons from Europe," OECD Trade and Environment Working Papers 2013/2, OECD Publishing.
    10. G. Cornelis van Kooten & Craig Johnston & Linda Wong, 2013. "Wind versus Nuclear Options for Generating Electricity in a Carbon-Constrained World: Strategizing in an Energy-Rich Economy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 505-511.
    11. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
    12. Jean-Thomas Bernard & Michel Roland, 1997. "Rent Dissipation through Electricity Prices of Publicly Owned Utilities," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1204-1219, November.
    13. Jan Carr, 2010. "Power Sharing: Developing Inter-Provincial Electricity Trade," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 306, July.
    14. Blum, Bernardo S. & Claro, Sebastian & Horstmann, Ignatius J., 2013. "Occasional and perennial exporters," Journal of International Economics, Elsevier, vol. 90(1), pages 65-74.
    15. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    16. Doucet, Joseph & Kleit, Andrew & Fikirdanis, Serkan, 2013. "Valuing electricity transmission: The case of Alberta," Energy Economics, Elsevier, vol. 36(C), pages 396-404.
    17. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    18. 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.
    19. Bresesti, Paola & Calisti, Roberto & Cazzol, Maria Vittoria & Gatti, Antonio & Provenzano, Dario & Vaiani, Andrea & Vailati, Riccardo, 2009. "The benefits of transmission expansions in the competitive electricity markets," Energy, Elsevier, vol. 34(3), pages 274-280.
    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. Agnosteva, Delina E. & Anderson, James E. & Yotov, Yoto V., 2019. "Intra-national trade costs: Assaying regional frictions," European Economic Review, Elsevier, vol. 112(C), pages 32-50.
    2. Stacy Julius & Nnanna P. Azu & Maimuna Y. Muhammad, 2019. "Assessing the Impact of Terrorism in Trade Development in the SADC Region: A Gravity Model Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(10), pages 1147-1159, October.
    3. Severin Borenstein & James Bushnell, 2015. "The US Electricity Industry After 20 Years of Restructuring," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 437-463, August.
    4. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    5. Felbermayr, Gabriel & Yotov, Yoto V., 2021. "From theory to policy with gravitas: A solution to the mystery of the excess trade balances," European Economic Review, Elsevier, vol. 139(C).
    6. Delgadillo Chavarria, Carlos Bruno, 2019. "El Efecto de la Mediterraneidad sobre el Flujo Comercial Internacional: Evidencia Empírica Internacional y para América del Sur (1990-2016) [The Effect of Landlocked Country Status on International Trade Flow: International and South America Empir," MPRA Paper 96093, University Library of Munich, Germany, revised 10 Sep 2019.
    7. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    8. De Sousa, José & Mirza, Daniel & Verdier, Thierry, 2018. "Terror networks and trade: Does the neighbor hurt?," European Economic Review, Elsevier, vol. 107(C), pages 27-56.
    9. Mariko Klasing & Petros Milionis & Robert Zymek, 2015. "Gravity across Space and Time," Edinburgh School of Economics Discussion Paper Series 265, Edinburgh School of Economics, University of Edinburgh.
    10. (ed.), 0. "Research Handbook on Economic Diplomacy," Books, Edward Elgar Publishing, number 16053, June.
    11. Roux, Catherine & Santos-Pinto, Luís & Thöni, Christian, 2016. "Home bias in multimarket Cournot games," European Economic Review, Elsevier, vol. 89(C), pages 361-371.
    12. L. DeBenedictis & A.M. Pinna, 2015. "Islands as 'Bad Geography'. Insularity, Connectedness, Trade Costs and Trade," Working Paper CRENoS 201504, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    13. Crozet, Matthieu & Milet, Emmanuel & Mirza, Daniel, 2016. "The impact of domestic regulations on international trade in services: Evidence from firm-level data," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 585-607.
    14. Pablo D. Fajgelbaum & Edouard Schaal, 2020. "Optimal Transport Networks in Spatial Equilibrium," Econometrica, Econometric Society, vol. 88(4), pages 1411-1452, July.
    15. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    16. D'Ambrosio, Anna & Montresor, Sandro, 2017. "Migration and Trade Ows: New Evidence from Spanish Regions," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201724, University of Turin.
    17. Maria Cipollina & Luca De Benedictis & Luca Salvatici & Claudio Vicarelli, 2016. "Policy Measurement And Multilateral Resistance In Gravity Models," Working Papers LuissLab 16130, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    18. Arribas, Iván & Bensassi, Sami & Tortosa-Ausina, Emili, 2020. "Trade integration in the European Union: Openness, interconnectedness, and distance," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    19. Lars Karlsson & Peter Hedberg, 2021. "War and trade in the peaceful century: the impact of interstate wars on bilateral trade flows during the first wave of globalization, 1830–1913," Economic History Review, Economic History Society, vol. 74(3), pages 809-830, August.
    20. Bahar, Dany & Hausmann, Ricardo & Hidalgo, Cesar A., 2014. "Neighbors and the evolution of the comparative advantage of nations: Evidence of international knowledge diffusion?," Journal of International Economics, Elsevier, vol. 92(1), pages 111-123.

    More about this item

    Keywords

    ;
    ;
    ;

    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:inecon:v:101:y:2016:i:c:p:42-51. 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/inca/505552 .

    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.