Stephen P. Holland (Department of Economics, University of North Carolina, Greensboro, and NBER) Erin T. Mansur (School of Management, Yale University, and NBER)
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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 SO_2, NO_x, and CO_2 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 U.S. regions, namely those with more hydropower like the West. The effects are relatively small. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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