EconPapers    
Economics at your fingertips  
 

Electricity price behavior and carbon trading: New evidence from California

Chi-Keung Woo, Y. Chen, A. Olson, J. Moore, N. Schlag, A. Ong and T. Ho

Applied Energy, 2017, vol. 204, issue C, 531-543

Abstract: The incidence of climate change policy is of great interests to economists, policy makers, producers and consumers. Using the daily market data for a 65-month period of 01/01/2011–05/31/2016, this empirical paper documents that the California Independent System Operator’s day-ahead prices have a CO2 premium approximately equal to natural-gas-fired generation’s marginal cost of CO2 emissions. This finding prevails in the six time-of-day periods developed to match the pricing periods used by the state’s local distribution companies and the bilateral trading of wholesale electricity in the Western Interconnection, a large electricity grid serving the western portion of North America and a Mexican state. Our findings suggest that the California cap-and-trade (C&T) program is effective in internalizing CO2 emission costs of the in-state natural-gas-fired generation. However, the program’s economic efficiency is compromised by the unintended consequence of power laundering under inter-regional trading of wholesale electricity. While the program encourages the Pacific Northwest’s hydro export that displaces California’s natural-gas-fired generation, it also induces output increases by non-California coal- and natural-gas-fired generators in the Western Interconnection. Hence, reducing the overall CO2 emissions in the Western Interconnection requires expanding the program’s geographic scope to meaningfully address the global warming problem.

Keywords: Electricity price behavior; Day-ahead market; Carbon trading; CO2 emissions cost pass-through; California (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030626191730942X
Full text for ScienceDirect subscribers only

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:eee:appene:v:204:y:2017:i:c:p:531-543

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic

Access Statistics for this article

Applied Energy is currently edited by J. Yan

More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2018-05-13
Handle: RePEc:eee:appene:v:204:y:2017:i:c:p:531-543