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Climate Change Policy and Its Effect on Market Power in the Gas Market

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Author Info
David M. Newbery

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Abstract

The European Emissions Trading Scheme (ETS) limits CO_2 emissions from covered sectors, especially electricity (accounting for about 56%). At EUR 44 billion per annum. the ETS is the largest emissions trading system ever, 40 times larger than US programmes. The article demonstrates that fixing the quantity rather than the price of carbon reduces the price elasticity of demand for gas appreciably, amplifying the market power of gas suppliers, and amplifying the impact of gas price increases on the electricity price. A rough estimate using British data suggests that this could increase the Lerner Index by 50%. (JEL: Q54, Q58, L94) (c) 2008 by the European Economic Association.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/JEEA.2008.6.4.727
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Publisher Info
Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 6 (2008)
Issue (Month): 4 (06)
Pages: 727-751
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Handle: RePEc:tpr:jeurec:v:6:y:2008:i:4:p:727-751

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Find related papers by JEL classification:
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

Cited by:
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  1. Colm McCarthy & Sue Scott, 2008. "Controlling the Cost of Controlling the Climate: The Irish Government's Climate Change Strategy," Papers WP229, Economic and Social Research Institute (ESRI). [Downloadable!]
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This page was last updated on 2008-12-19.

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