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Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance

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Listed:
  • Stephen P. Holland

    (Department of Economics, University of North Carolina, Greensboro, and NBER)

  • Erin T. Mansur

    (School of Management, Yale University, and NBER)

Abstract

Real-time pricing (RTP) of electricity would improve allocative efficiency and limit wholesalers' market power. Conventional wisdom claims that RTP provides additional environmental benefits. This paper argues that RTP will reduce the variance, both within- and across-days, in the quantity of electricity demanded. We estimate the short-run impacts of this reduction on SO_2, NO_x, and CO_2 emissions. Reducing variance decreases emissions in regions where peak demand is met more by oil-fired capacity than by hydropower, such as the Mid-Atlantic. However, reducing variance increases emissions in more U.S. regions, namely those with more hydropower like the West. The effects are relatively small. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 550-561, August.
  • Handle: RePEc:tpr:restat:v:90:y:2008:i:3:p:550-561
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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