Competition Policy and the Transition to a Low-Carbon, Efficient Electricity Industry

Abstract

U.S. industries are facing intense pressures to become more energy efficient, driven by the need to lower the carbon footprints of energy-intensive sectors and to achieve energy security. A successful transition to a new era of efficient, low-carbon electricity production and usage will require fundamental changes in the way we plan for, produce, deliver, and price a critically important commodity. The purpose of this article is to explore the importance of competition policy in a transitioning electricity industry. It starts by setting out the important precondition of the new era: market participants have fundamentally different objectives than in the old regime, and these changed objectives need to be recognized in order to fashion appropriate policy. Next, the paper presents some of the major competitive issues that are likely to arise in the new era, including: access and demand response technologies, the design of markets for CO2 emissions allowances, and transmission planning. The paper concludes with a number of recommendations for how competition policy can best promote a successful transition.