"Second-Best" Adjustments to Externality Estimates in Electricity Planning with Competition

Dallas Burtraw, Karen Palmer and Alan Krupnick ()

Land Economics, 1997, vol. 73, issue 2, 224-239

Abstract: Some public utility commissions use monetary place-holders to reflect externality values in the financial evaluation of utility investments. This approach can be justified as a "second-best" policy tool if existing environmental regulation can be taken as given. This paper addresses two possible unintended consequences of this policy: the effect on the price-marginal cost gap and the potential substitution towards unregulated generation. We compute a "second-best adder" to correct for externalities in electricity planning in three regional case studies using a normative model of economic efficiency. Such adders are found to differ from externality estimates by 10-20 percent or more.

Date: 1997
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Related works:
Working Paper: 'Second-Best' Adjustments to Externality Estimates in Electricity Planning with Competition (1995)
Working Paper: "Second-Best" Adjustments to Externality Estimates in Electricity Planning with Competition (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:uwp:landec:v:73:y:1997:i:2:p:224-239

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