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Climate change policy and its effect on market power in the gas market

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  • Newbery, D.

Abstract

The European Emissions Trading Scheme (ETS) limits CO2 emissions from covered sectors, especially electricity until December 2007, after which a new set of Allowances will be issued. The paper demonstrates that the impact of controlling the quantity rather than the price of carbon is to reduce the elasticity of demand for gas, amplifying the market power of gas suppliers, and also amplifying the impact of gas price increases on the price of electricity. A rough estimate using just British data suggests that this could increase gas market power by 50%.

Suggested Citation

  • Newbery, D., 2006. "Climate change policy and its effect on market power in the gas market," Cambridge Working Papers in Economics 0606, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0606
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    File URL: http://www.electricitypolicy.org.uk/pubs/wp/eprg0510.pdf
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    Cited by:

    1. Asproudis, Elias & Weyman-Jones, Tom, 2011. "Third parties �participation in tradable permits market. Do we need them?," MPRA Paper 28766, University Library of Munich, Germany.
    2. Fridrik Baldursson & Nils-Henrik Fehr, 2012. "Price Volatility and Risk Exposure: On the Interaction of Quota and Product Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 213-233, June.
    3. repec:dau:papers:123456789/5385 is not listed on IDEAS
    4. Nadia Chernenko, 2013. "The Impact of Efficient Carbon and Gas Pricing on the Russian Electricity Market," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    5. Hecking, Harald, 2015. "CO2 abatement policies in the power sector under an oligopolistic gas market," EWI Working Papers 2014-14, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    6. Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013. "Price and welfare effects of emission quota allocation," Energy Economics, Elsevier, vol. 36(C), pages 568-580.
    7. Zhang, Qiong & Yang, Hangjun & Wang, Qiang & Zhang, Anming, 2014. "Market power and its determinants in the Chinese airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 1-13.
    8. Ritz, Robert A., 2014. "Price discrimination and limits to arbitrage: An analysis of global LNG markets," Energy Economics, Elsevier, vol. 45(C), pages 324-332.
    9. Roques, Fabien A., 2008. "Technology choices for new entrants in liberalized markets: The value of operating flexibility and contractual arrangements," Utilities Policy, Elsevier, vol. 16(4), pages 245-253, December.
    10. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
    11. Colm McCarthy & Jeremiah O'Dwyer & Richard Troy, 2006. "Measuring fuel diversity in power generation," Working Papers 200618, School of Economics, University College Dublin.
    12. Colm McCarthy & Sue Scott, 2008. "Controlling the cost of controlling the climate : the Irish government’s climate change strategy," Working Papers 200807, School of Economics, University College Dublin.
    13. Julien Chevallier & Johanna Etner & Pierre-André Jouvet, 2008. "Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence," EconomiX Working Papers 2008-25, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    Climate change; emissions trading; market power; gas; quotas vs taxes;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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