The Effects of Environmental Quality Standards on Pricing Electrical Energy

N D Uri
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N D Uri: Electric Power Analysis Division, Federal Energy Administration, Washington DC, 20461, USA

Environment and Planning A, 1976, vol. 8, issue 5, 573-580

Abstract: In this paper the effects of implementing environmental quality standards on the pricing of electrical energy is discussed. In a situation where the maximization of social welfare is the objective, the price, in any period, is set equal to the operating cost plus explicit and implicit environmental-quality costs plus amortization on any new generating capacity. Further, a sufficiently high combination of costs to meet environmental quality standards will result in an earlier retirement of existing capacity than would otherwise have been the case. In a profit-maximizing situation in which profit is subject to a return-on-investment constraint, the imposition of these standards leads, via the Averch—Johnson effect, to a larger investment in new generating capacity.

Date: 1976
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Persistent link: https://EconPapers.repec.org/RePEc:sae:envira:v:8:y:1976:i:5:p:573-580

DOI: 10.1068/a080573

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