Working Paper: NBER ID: w13508
Authors: Stephen P. Holland; Erin T. Mansur
Abstract: Real-time pricing (RTP) of electricity would improve allocative efficiency and limit wholesalers' market power. Conventional wisdom claims that RTP provides additional environmental benefits. This paper argues that RTP will reduce the variance, both within- and across-days, in the quantity of electricity demanded. We estimate the short-run impacts of this reduction on SO2, NOx, and CO2 emissions. Reducing variance decreases emissions in regions where peak demand is met more by oil-fired capacity than by hydropower, such as the Mid-Atlantic. However, reducing variance increases emissions in more US regions, namely those with more hydropower like the West. The effects are relatively small.
Keywords: Real-Time Pricing; Electricity Demand; Environmental Impacts; Emissions
JEL Codes: L51; L94; Q53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Real-time pricing (RTP) (D49) | Reduced variance in electricity demand (Q47) |
| Reduced variance in electricity demand (Q47) | Emissions of pollutants (SO2, NOX, CO2) (Q52) |
| Reduced demand variance (in regions with oil-fired capacity) (Q47) | Decrease in emissions (Q52) |
| Reduced demand variance (in regions with hydropower) (R22) | Increase in emissions (O44) |
| Reduction in within-day load variance (L97) | Increase in SO2 emissions in Ecar, ERCOT, SERC, WSCC (L94) |
| Reduction in within-day load variance (L97) | Decrease in emissions in FRCC, MAAC, Main (Q49) |
| Across-day variance reduction (C22) | Significant increases in emissions in WSCC (Q52) |
| Across-day variance reduction (C22) | Decrease in emissions in NPCC, MAAC (Q54) |