Environmentally Damaging Electricity Trade

Pierre-Olivier Pineau and Etienne Billette de Villemeur

No 592, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: Electricity trade across regions is often considered welfare enhancing. We show in this paper that this could be reconsidered if environmental externalities are taken into account. We consider two cases where trade is beneficial, before accounting for environmental damages: first, when two regions with the same technology display some demand heterogeneity; second when one region endowed with hydropower arbitrages with its "thermal" neighbor. Our results show that under reasonable demand and supply elasticities, trade comes with an additional environmental cost. This calls for integrating environmental externalities into market reforms when redesigning the electricity sector. Two North American applications illustrate our results: trade between Pennsylvania and New York, and trade between hydro-rich Quebec and New York.

Keywords: Electricity trade; hydropower; greenhouse gas emissions (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
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Journal Article: Environmentally damaging electricity trade (2010)
Working Paper: Environmentally Damaging Electricity Trade (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:21611

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