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Environmentally Damaging Electricity Trade


  • Pineau, Pierre-Olivier
  • de Villemeur, Étienne


Electricity trade across regions is often considered welfare enhancing. We show in this paper that this could be reconsidered if environmental externalities are taken into account. We consider two cases where trade is beneficial, before accounting for environmental damages: first, when two regions with the same technology display some demand heterogeneity; second when one region endowed with hydropower arbitrages with its "thermal" neighbor. Our results show that under reasonable demand and supply elasticities, trade comes with an additional environmental cost. This calls for integrating environmental externalities into market reforms when redesigning the electricity sector. Two North American applications illustrate our results: trade between Pennsylvania and New York, and trade between hydro-rich Quebec and New York.

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  • Pineau, Pierre-Olivier & de Villemeur, Étienne, 2009. "Environmentally Damaging Electricity Trade," TSE Working Papers 09-118, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:21971

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    References listed on IDEAS

    1. Pineau, Pierre-Olivier & Hira, Anil & Froschauer, Karl, 2004. "Measuring international electricity integration: a comparative study of the power systems under the Nordic Council, MERCOSUR, and NAFTA," Energy Policy, Elsevier, vol. 32(13), pages 1457-1475, September.
    2. Pineau, Pierre-Olivier, 2008. "Electricity sector integration in West Africa," Energy Policy, Elsevier, vol. 36(1), pages 210-223, January.
    3. Jean-Thomas Bernard & Frédéric Clavet & Jean-Cléophas Ondo, 2004. "Electricity Production and CO2 Emission Reduction: Dancing to a Different Tune Across the Canada-US Border," Canadian Public Policy, University of Toronto Press, vol. 30(4), pages 401-426, December.
    4. Apostolos Serletis, 2012. "Quantitative and Empirical Analysis of Energy Markets," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8624, January.
    5. DeCicco, John M. & Bernow, Stephen S. & Beyea, Jan, 1992. "Environmental concerns regarding electric power transmission in North America," Energy Policy, Elsevier, vol. 20(1), pages 30-39, January.
    6. Dahl, Carol A., 1993. "A survey of energy demand elasticities in support of the development of the NEMS," MPRA Paper 13962, University Library of Munich, Germany.
    7. Etienne BILLETTE DE VILLEMEUR & Annalisa VINELLA, 2008. "Water Misallocation and Environmental Externalities in Electricity Generation," RSCAS Working Papers 2008/27, European University Institute.
    8. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
    9. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
    10. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 1998. "Lectures on International Trade, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522470, January.
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    Cited by:

    1. Billette de Villemeur, Etienne & Vinella, Annalisa, 2011. "Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact," Utilities Policy, Elsevier, vol. 19(1), pages 20-32, January.
    2. Arina Nikandrova & Jevgenijs Steinbuks, 2017. "Contracting for the second best in dysfunctional electricity markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 41-71, February.
    3. Unteutsch, Michaela, 2014. "Who Benefits from Cooperation? - A Numerical Analysis of Redistribution Effects Resulting from Cooperation in European RES-E Support," EWI Working Papers 2014-2, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    4. Amor, Mourad Ben & Pineau, Pierre-Olivier & Gaudreault, Caroline & Samson, Réjean, 2011. "Electricity trade and GHG emissions: Assessment of Quebec's hydropower in the Northeastern American market (2006-2008)," Energy Policy, Elsevier, vol. 39(3), pages 1711-1721, March.
    5. Etienne Billette de Villemeur and Pierre-Olivier Pineau, 2016. "Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    6. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2012. "Regulation and electricity market integration: When trade introduces inefficiencies," Energy Economics, Elsevier, vol. 34(2), pages 529-535.
    7. Unteutsch, Michaela, 2014. "Redistribution Effects Resulting from Cross-Border Cooperation in Support for Renewable Energy," EWI Working Papers 2014-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).

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    Electricity trade; hydropower; greenhouse gas emissions;

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