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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
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Working Paper: Pass-through of Emissions Costs in Electricity Markets (2013) Downloads
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