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The Effects of Environmental Quality Standards on Pricing Electrical Energy

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  • N D Uri

    (Electric Power Analysis Division, Federal Energy Administration, Washington DC, 20461, USA)

Abstract

In this paper the effects of implementing environmental quality standards on the pricing of electrical energy is discussed. In a situation where the maximization of social welfare is the objective, the price, in any period, is set equal to the operating cost plus explicit and implicit environmental-quality costs plus amortization on any new generating capacity. Further, a sufficiently high combination of costs to meet environmental quality standards will result in an earlier retirement of existing capacity than would otherwise have been the case. In a profit-maximizing situation in which profit is subject to a return-on-investment constraint, the imposition of these standards leads, via the Averch—Johnson effect, to a larger investment in new generating capacity.

Suggested Citation

  • N D Uri, 1976. "The Effects of Environmental Quality Standards on Pricing Electrical Energy," Environment and Planning A, , vol. 8(5), pages 573-580, August.
    • Handle: RePEc:sae:envira:v:8:y:1976:i:5:p:573-580
    DOI: 10.1068/a080573
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    References listed on IDEAS

    as
    1. Turvey, R, 1969. "Marginal Cost," Economic Journal, Royal Economic Society, vol. 79(314), pages 282-299, June.
    2. Mohring, Herbert, 1970. "The Peak Load Problem with Increasing Returns and Pricing Constraints," American Economic Review, American Economic Association, vol. 60(4), pages 693-705, September.
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