Mitigation from a cross-sectoral perspective

Annual Energy Outlook

The theory of environmental policy

Annual Energy Outlook 2008 With Projections to 2030

Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers’ perceived price of nonlinear price schedules. I exploit price variation at spatial discontinuities in electricity service areas, where households in the same city experience substantially different nonlinear pricing. Using household-level panel data from administrative records, I find strong evidence that consumers respond to average price rather than marginal or expected marginal price. This suboptimizing behavior makes nonlinear pricing unsuccessful in achieving its policy goal of energy conservation and critically changes the welfare implications of nonlinear pricing. (JEL D12, L11, L94, L98, Q41)

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Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing

Ancillary benefits of reduced air pollution in the US from moderate greenhouse gas mitigation policies in the electricity sector

We investigate the cost-effectiveness and distributional effects of a revenue-raising auction, grandfathering, and a generation performance standard as alternative approaches for distributing carbon emission allowances in the electricity sector. We solve a detailed national electricity market model and find the auction is roughly one-half the societal cost of the other approaches. This result holds under a variety of assumptions about the future state of economic regulation and competition in the electricity sector. The differences in the cost of the approaches flow from the effect of each approach on electricity price. Grandfathering is the best for producers but it imposes a substantial cost on consumers. The generation performance standard yields the lowest electricity price but highest natural gas price. The auction does better than the generation performance standard at protecting households and at preserving asset values for producers. It also yields revenues that can help meet other efficiency and distributional goals.

The Effect of Allowance Allocation on the Cost of Carbon Emission Trading

Paradoxically, owners of existing generation assets may be better off paying for carbon dioxide emission allowances than having them distributed for free. This analysis shows that it takes just 7.5% of the revenue raised under an auction to preserve the asset values of existing generators.

The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances

Many electricity demand estimates have been obtained based on the assumption that consumers optimize with respect to known marginal prices, but increasing empirical evidence suggests that consumers are more likely to respond to average prices. Under this assumption, this paper develops a new strategy based on Generalized Method of Moments to estimate household electricity demand. Our demand estimation approach uses publicly available expenditure data and utility-level consumption data from several major U.S. cities, complementing studies that use individual billing data which are richer yet often proprietary. We estimate the price elasticity near -0.50, which is at the upper end (in magnitude) among the estimates from previous studies. This could have important implications for policy analysis such as those on climate policies that may affect electricity prices.

A New Look at Residential Electricity Demand Using Household Expenditure Data

Identifying the factors that influence electricity demand in the continental United States and mathematically characterizing them are important for developing electricity consumption projections. The price elasticity of demand is especially important, since the electricity price effects of policy implementation can be substantial and the demand response to policy-induced changes in prices can significantly affect the cost of policy compliance. This paper estimates electricity demand functions with particular attention paid to the demand stickiness that is imposed by the capital-intensive nature of electricity consumption and to regional, seasonal, and sectoral variation. The analysis uses a partial adjustment model of electricity demand that is estimated in a fixed-effects OLS framework. This model formulation allows for the price elasticity to be expressed in both its short-run and long-run forms. Price elasticities are found to be broadly consistent with the existing literature, but with important regional, seasonal, and sectoral differences.

Anthony Paul

Papers

Ancillary benefits of reduced air pollution in the US from moderate greenhouse gas mitigation policies in the electricity sector

The Effect of Allowance Allocation on the Cost of Carbon Emission Trading

The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances

A New Look at Residential Electricity Demand Using Household Expenditure Data

A Partial Adjustment Model of U.S. Electricity Demand by Region, Season, and Sector