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Pass-through of Emissions Costs in Electricity Markets

Natalia Fabra () and Mar Reguant ()

No 19613, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We measure the pass-through of emissions costs to electricity prices and explore its determinants. We perform both reduced-form and structural estimations based on optimal bidding in this market. Using rich micro-level data, we estimate the channels affecting pass-through in a flexible manner, with minimal functional form assumptions. Contrary to many studies in the general pass-through literature, we find that emissions costs are almost fully passed-through to electricity prices. Since electricity is traded through high-frequency auctions for highly inelastic demand, firms have weak incentives to adjust markups after the cost shock. Furthermore, the costs of price adjustment are small.

JEL-codes: D44 L13 L94 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
Note: EEE IO
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Published as Natalia Fabra & Mar Reguant, 2014. "Pass-Through of Emissions Costs in Electricity Markets," American Economic Review, American Economic Association, vol. 104(9), pages 2872-99, September.

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