Pass-Through of Emissions Costs in Electricity Markets

Natalia Fabra and Mar Reguant

American Economic Review, 2014, vol. 104, issue 9, 2872-99

Abstract: We measure the pass-through of emissions costs to electricity prices. We perform both reduced-form and structural estimations based on optimal bidding in this market. Using rich micro-level data, we estimate the channels affecting pass-through in a flexible manner, with minimal functional form assumptions. Contrary to many studies in the general pass-through literature, we find that emissions costs are almost fully passed-through to electricity prices. Since electricity is traded through high-frequency auctions for highly inelastic demand, firms have weak incentives to adjust markups after the cost shock. Furthermore, the costs of price adjustment are small.

JEL-codes: D44 L11 L94 L98 Q52 Q54 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.9.2872
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (196)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.104.9.2872 (application/pdf)
http://www.aeaweb.org/aer/app/10409/20130186_app.pdf (application/pdf)
http://www.aeaweb.org/aer/data/10409/20130186_data.zip (application/zip)
http://www.aeaweb.org/aer/ds/10409/20130186_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Pass-through of Emissions Costs in Electricity Markets (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:104:y:2014:i:9:p:2872-99

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().