Working paper

Environmentally Damaging Electricity Trade

Pierre-Olivier Pineau, and Étienne de Villemeur

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;

Replaced by

Reference

Pierre-Olivier Pineau, and Étienne de Villemeur, Environmentally Damaging Electricity Trade, TSE Working Paper, n. 09-118, November 2009.

See also

Published in

TSE Working Paper, n. 09-118, November 2009