Pass-through of emissions costs in electricity markets Articles
- AMERICAN ECONOMIC REVIEW Journal
- September 2014
Digital Object Identifier (DOI)
International Standard Serial Number (ISSN)
Electronic International Standard Serial Number (EISSN)
- We measure the pass-through of emissions costs to electricity prices. We perform both reduced-form and structural estimations based on optimal bidding in this market. Using rich micro-level data, we estimate the channels affecting pass-through in a flexible manner, with minimal functional form assumptions. Contrary to many studies in the general pass-through literature, we find that emissions costs are almost fully passed through to electricity prices. Since electricity is traded through high-frequency auctions for highly inelastic demand, firms have weak incentives to adjust markups after the cost shock. Furthermore, the costs of price adjustment are small.
- spot market; structural approach; exchange-rate; competition; oligopoly; auctions; permits; prices