Dynamic Behaviour of Hydro/Thermal Electrical Operators Under an Environmental Policy Targeting to Preserve Ecosystems Integrity and Air Quality

Houeida Hedfi (), Ahlem Dakhlaoui and Abdessalem Abbassi
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Houeida Hedfi: UR MASE - Modélisation et Analyse Statistique et Economique - ESSAIT - Ecole Supérieure de la Statistique et de l'Analyse de l'Information - UCAR - Université de Carthage (Tunisie)

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Abstract: In this paper, we analyse the effect of an environmental policy that targets to enhance ecosystems integrity as well as air quality in the wholesale electricity market. We developed a dynamic Cournot game between a hydro and a thermal risk adverse electricity producers under demand uncertainty. We demonstrate that while improving air quality necessarily raises the market price, enhancing ecosystems integrity can, under water abundance hypothesis, reduce it. Moreover, in order to establish a statement about the environmental policy efficiency, we examine interactions between both environmental measures and their potential side effects. We show that prioritizing natural flow regime minimises necessarily the taxation efficiency on lowering air pollution and emphasizes the price rise due to the taxation. Nevertheless, the effect of the taxation policy on the efficiency of the ecosystems integrity policy depends on the hydro producer's ability to substitute thermal units. In order to establish a precise environmental statement, the regulation authority needs to compare, using appropriate criteria , the importance of an avoided unit of surrounding ecosystem alteration to an avoided unit of air polluting production, in the whole ecosystem functioning.

Keywords: Electricity generation; Environmental policy; Dynamic modelling; Imperfect competi- tion; Ecosystems integrity; Air quality (search for similar items in EconPapers)
Date: 2020-03-28
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-reg
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02523330
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