Abstract
Dynamic pricing programs have the potential to better align the price and social marginal costs of electricity production in the presence of time-varying external impacts on environmental quality. Using a particular dynamic pricing implementation, we show that the resulting impact on short-term operating costs and emissions is at best ambiguous. Moreover, we highlight the difficulty in quantifying impacts across geographic regions even in ideal scenarios where data is plentiful and the behavioral response can be estimated precisely using a randomized control trial of customers of an electric utility. Our findings point to price-induced reallocation of electricity consumption within a day as the underlying causal mechanism that may increase net emissions depending on the source-generation mix of a region.
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