Pollution Under Environmental Regulation Within Multi-Period Auctions: The Case of Electricity Markets

Abstract

AbstractThis chapter aims at exploring how imperfect competition can affect the performance of environmental policy. The focus is on power generation which is a particularly interesting case for three reasons. First it is one of the most important environmentally regulated markets. Second the demand for electricity varies cyclically over time (for example on hourly basis). Third the pricing mechanism is a multi-period and multi-unit first price auction. The main finding of the analysis is that, looking at the entire demand cycle, it is very unlikely that imperfect competition may lessen the performance of environmental policy although, in line with the current literature, the analysis shows that pollution can increase within specific cycle periods, at least in the short-run.KeywordsMarginal CostEnvironmental PolicyMarket PowerElectricity MarketImperfect CompetitionThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.