Market Power with Tradable Performance-Based CO2 Emission Standards in the Electricity Sector

Yihsu Chen, Makoto Tanaka and Afzal S. Siddiqui

The Energy Journal, 2018, vol. 39, issue 6, 121-146

Abstract: The U.S. Clean Power Plan stipulates a state-specific performance-based CO2 emission standard, delegating states with considerable flexibility for using either a tradable performance-based or a mass-based permit program. This paper analyzes these two standards under imperfect competitive. We limit our attention to (1) short-run analyses and (2) a situation in which all states are subject to the same type of standard. We show that while the cross-subsidy inherent in the performance-based standard might effectively reduce power prices, it could also inflate energy consumption. A dominant firm with a relatively clean endowment under the performance-based standard would be able to manipulate the electricity market as well as to elevate permit prices, which might worsen market outcomes compared to its mass-based counterpart. On the other hand, the “cross-subsidy†could be the dominant force leading to a higher social welfare if the leader has a relatively dirty endowment.

Keywords: Climate policy; Electricity industry; Mathematical program with; equilibrium constraints; Performance-based standards (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.39.6.yche (text/html)

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:sae:enejou:v:39:y:2018:i:6:p:121-146

DOI: 10.5547/01956574.39.6.yche

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().