Water Misallocation and Environmental Externalities in Electricity Generation

Etienne Billette de Villemeur and Annalisa Vinella

No 2008/27, RSCAS Working Papers from European University Institute

Abstract: We explore the interactions between environmental externalities and intertemporal market power in electricity generation industries where thermal operators imperfectly compete with operators using scarce water stored in dams. Relying upon a two-period model, we show that, in countries where demand peaks at the first (resp.ly, second) period after water renewal, dynamic market power worsens (resp.ly, ameliorates) resource allocation and environmental health. We then address policy issues. We show that, in general, second best is not decentralized by means of standard tools such as price cap. We argue that the hydraulic process requires specific regulation. We put forward a quantity-based version of the contracts for price difference increasingly used in power pools, to be adopted jointly with either a flexible form of taxation or an intertemporal price cap.

Keywords: power generation; water allocation; externalities; price cap; contracts for water difference. (search for similar items in EconPapers)
JEL-codes: D62 H23 L13 L51 L94 (search for similar items in EconPapers)
Date: 2008-07-29
New Economics Papers: this item is included in nep-ene, nep-env and nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://cadmus.eui.eu/dspace/bitstream/1814/9127/1/RSCAS_2008_27.pdf Full text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://cadmus.eui.eu/dspace/bitstream/1814/9127/1/RSCAS_2008_27.pdf [301 Moved Permanently]--> https://cadmus.eui.eu/dspace/bitstream/1814/9127/1/RSCAS_2008_27.pdf)

Related works:
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:rsc:rsceui:2008/27

Access Statistics for this paper

More papers in RSCAS Working Papers from European University Institute Convento, Via delle Fontanelle, 19, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by RSCAS web unit ().