Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance
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.
We would like to thank Severin Borenstein, Dallas Burtraw, Jim Bushnell, Judy Chevalier, Kevin Forbes, Jun Ishii, Nat Keohane, Al Klevorick, Robert Mendelsohn, V. Kerry Smith, Chris Timmins, Frank Wolak, an anonymous referee, and seminar participants at the University of California Energy Institute, Camp Resources, and Yale University for comments. Thanks also to Meredith Fowlie and Nalin Sahni for excellent research assistance. Holland thanks the University of California Energy Institute for generous research support during this project. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 550-561, 04. citation courtesy of