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Dynamic Behaviour of Hydro/Thermal Electrical Operators Under an Environmental Policy Targeting to Preserve Ecosystems Integrity and Air Quality


  • Houeida Hedfi

    (UR MASE - Modélisation et Analyse Statistique et Economique - ESSAIT - Ecole Supérieure de la Statistique et de l'Analyse de l'Information - Université de Carthage - University of Carthage)

  • Ahlem Dakhlaoui

    (LEGI - Laboratoire d'Économie et de Gestion Industrielle [Tunis] - Ecole Polytechnique de Tunisie)

  • Abdessalem Abbassi

    (Centre de Recherche en économie de l'Environnement, de l'Agroalimentaire, des Transports et de l'Énergie (CREATE) - ULaval - Université Laval [Québec])


In this paper, we analyse the effect of an environmental policy that targets to enhance ecosystems integrity as well as air quality in the wholesale electricity market. We developed a dynamic Cournot game between a hydro and a thermal risk adverse electricity producers under demand uncertainty. We demonstrate that while improving air quality necessarily raises the market price, enhancing ecosystems integrity can, under water abundance hypothesis, reduce it. Moreover, in order to establish a statement about the environmental policy efficiency, we examine interactions between both environmental measures and their potential side effects. We show that prioritizing natural flow regime minimises necessarily the taxation efficiency on lowering air pollution and emphasizes the price rise due to the taxation. Nevertheless, the effect of the taxation policy on the efficiency of the ecosystems integrity policy depends on the hydro producer's ability to substitute thermal units. In order to establish a precise environmental statement, the regulation authority needs to compare, using appropriate criteria , the importance of an avoided unit of surrounding ecosystem alteration to an avoided unit of air polluting production, in the whole ecosystem functioning.

Suggested Citation

  • Houeida Hedfi & Ahlem Dakhlaoui & Abdessalem Abbassi, 2020. "Dynamic Behaviour of Hydro/Thermal Electrical Operators Under an Environmental Policy Targeting to Preserve Ecosystems Integrity and Air Quality," Working Papers halshs-02523330, HAL.
  • Handle: RePEc:hal:wpaper:halshs-02523330
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    References listed on IDEAS

    1. Richard Cowell, 2000. "Environmental Compensation and the Mediation of Environmental Change: Making Capital out of Cardiff Bay," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 43(5), pages 689-710.
    2. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
    3. DAKHLAOUI Ahlem & MOREAUX Michel, 2007. "Trade-off between Hydro and Thermal Power Generation under Uncertainty," LERNA Working Papers 07.13.234, LERNA, University of Toulouse.
    4. Rayamajhee, Veeshan & Joshi, Aakrit, 2018. "Economic trade-offs between hydroelectricity production and environmental externalities: A case for local externality mitigation fund," Renewable Energy, Elsevier, vol. 129(PA), pages 237-244.
    5. Larue, Bruno & Yapo, Vincent, 2000. "Asymmetries in risk and in risk attitude: the duopoly case," Journal of Economics and Business, Elsevier, vol. 52(5), pages 435-453.
    6. Talat S. Genc & Henry Thille, 2011. "Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation," Working Papers 1104, University of Guelph, Department of Economics and Finance.
    Full references (including those not matched with items on IDEAS)

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    More about this item


    Electricity generation; Environmental policy; Dynamic modelling; Imperfect competi- tion; Ecosystems integrity; Air quality;
    All these keywords.

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