Linking Retail Electricity Pricing and the Decarbonisation of the Energy Sector: a Microeconomic Approach

Linda Mastrandrea

No 202128, Working Papers from School of Economics, University College Dublin

Abstract: In this paper we address the problem of policy coordination in the electricity sector when the supply side is subject to a carbon constraint. We speci?cally evaluate the link between retail electricity pricing and GHG emissions reduction. Moreover, we incorporate in the analysis both the variability of electricity demand and the uncertainty of clean energy supply. By developing an analytical framework grounded in the standard microeconomic theory, we model peak pricing, block pricing and real time pricing from the perspective of a representative consumer. We then estimate the impact of each pricing scheme on the social welfare function, with a speci?c focus on the external cost function where GHG emissions are explicitly accounted for. We ?nd that the impact of peak and block pricing on the carbon emissions form the electricity sector is strongly in?uenced by the relative emissions intensity of baseload and peak generation. In contrast, the role of real time pricing as an environmental policy tool depends on the possibility for retail customers to discriminate their consumption over the quality and price of the electricity demanded.

Keywords: Energy economics; Retail electricity pricing; Greenhouse gas emissions (search for similar items in EconPapers)
JEL-codes: D62 Q42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2021-12
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