The efficiency and environmental impacts of market organization: Evidence from the Texas electricity market

Paul Brehm and Yiyuan Zhang

Energy Economics, 2021, vol. 101, issue C

Abstract: This paper examines the effect of market organization on efficiency and emissions in wholesale electricity markets. Taking advantage of Texas' transition from a decentralized bilateral trading market to a centralized auction market, we find that information aggregation has a positive effect on market efficiency that dominates any change in market power incentives. Specifically, we show that in the nine months following the transition, high-cost generators are displaced by low-cost generators in production, leading to annual cost savings of ~$59 million relative to the counterfactual. Although the centralized market reduces generation costs, it also has an unintended effect on pollution emissions. For moderate marginal damage estimates, we find the increase in external costs of emissions completely offsets the productive efficiency gain.

Keywords: Market design; Electricity markets; Congestion externality; Market power; Emissions (search for similar items in EconPapers)
JEL-codes: L51 L94 Q41 Q51 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:101:y:2021:i:c:s0140988321002656

DOI: 10.1016/j.eneco.2021.105359

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