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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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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 09-118.

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Date of creation: Nov 2009
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Publication status: Published in Energy Policy, vol.�38, n°3, Elsevier, mars 2010, p.�1548-1558.
Handle: RePEc:tse:wpaper:21971
Contact details of provider: Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/

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  1. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
  2. 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.
  3. 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.
  4. Pineau, Pierre-Olivier, 2008. "Electricity sector integration in West Africa," Energy Policy, Elsevier, vol. 36(1), pages 210-223, January.
  5. 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.
  6. 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.
  7. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
  8. 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, June.
  9. Crampes, C. & Moreaux, M., 2001. "Water resource and power generation," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 975-997, May.
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