IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Emissions Trading in Forward and Spot Markets for Electricity

Abstract:
Tradable allowances have received considerable attention in recent years. One emerging issue is their interaction with electricity markets. This paper extends the model of Allaz and Vila (1993) by incorporating emissions trading with forward and spot markets for electricity. We focus on the effects of strategic forward position and initial allowances allocation on the equilibrium outcomes. We find that firms with a dirty portfolio would have stronger incentives to take a long position in the forward market to raise the electricity price. Increasing the amount of allowances assigned to clean firms leads to a reduction in electricity and allowance prices. Keywords: Cap-and-Trade, Market Power, Forward Contract

Purchase ( $25 )

Energy Specializations: Electricity – Markets and Prices ; Electricity – Policy and Regulation; Energy and the Environment – Environmental Market Design; Energy and the Environment – Policy and Regulation

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q41: Energy: Demand and Supply; Prices, D21: Firm Behavior: Theory, D22: Firm Behavior: Empirical Analysis, L13: Oligopoly and Other Imperfect Markets, Q42: Alternative Energy Sources, Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling, L11: Production, Pricing, and Market Structure; Size Distribution of Firms

Keywords: Cap-and-trade, Market power, Forward contract

DOI: 10.5547/01956574.33.2.9

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 33, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

© 2023 International Association for Energy Economics | Privacy Policy | Return Policy