Sustainable Transmission Planning in Imperfectly Competitive Electricity Industries: Balancing economic efficiency and environmental outcomes

Afzal S. Siddiqui, Makoto Tanaka and Yihsu Chen

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: We explore the role of a transmission system operator (TSO) that builds a transmission line to accommodate renewable energy while attempting to lower emissions. A TSO in a deregulated electricity industry can only indirectly influence outcomes through its choice of the transmission line capacity. Via a bi-level model, we show that this results in less transmission capacity and with limited emissions control in a perfectly competitive industry vis-a-vis a benchmark centrally planned system. Surprisingly, a carbon tax on industry leads to a perfect alignment of incentives and maximized social welfare only under perfect competition. By contrast, a carbon tax actually lowers social welfare under a Cournot oligopoly as the resulting reduction in consumption facilitates the further exercise of market power.

Pages: 39 pages
Date: 2017-03
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:17024

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