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Emissions Trading in Forward and Spot Markets for Electricity

Makoto Tanaka and Yihsu Chen

Year: 2012
Volume: Volume 33
Number: Number 2
DOI: 10.5547/01956574.33.2.9
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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



Market Power with Tradable Performance-Based CO2 Emission Standards in the Electricity Sector

Yihsu Chen, Makoto Tanaka, and Afzal S. Siddiqui

Year: 2018
Volume: Volume 39
Number: Number 6
DOI: 10.5547/01956574.39.6.yche
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Abstract:
The U.S. Clean Power Plan stipulates a state-specific performance-based CO2 emission standard, delegating states with considerable flexibility for using either a tradable performance-based or a mass-based permit program. This paper analyzes these two standards under imperfect competitive. We limit our attention to (1) short-run analyses and (2) a situation in which all states are subject to the same type of standard. We show that while the cross-subsidy inherent in the performance-based standard might effectively reduce power prices, it could also inflate energy consumption. A dominant firm with a relatively clean endowment under the performance-based standard would be able to manipulate the electricity market as well as to elevate permit prices, which might worsen market outcomes compared to its mass-based counterpart. On the other hand, the "cross-subsidy" could be the dominant force leading to a higher social welfare if the leader has a relatively dirty endowment.





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