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The (Alleged) Environmental and Social Benefits of Dynamic Pricing

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  • Harding, Matthew

    (University of California, Irvine)

  • Kettler, Kyle

    (University of California, Irvine)

  • Lamarche, Carlos

    (University of Kentucky)

  • Ma, Lala

    (University of Kentucky)

Abstract

This paper provides a cautionary tale about claiming environmental costs and benefits when justifying the use of public funds. Using the example of a dynamic pricing policy, we show that the resulting impact on short-term operating costs and emissions is at best ambiguous. Moreover, it is hard to quantify even in ideal scenarios where data is plentiful and the behavioral response can be estimated precisely using a randomized control trial of customers of an electric utility. While dynamic pricing has been touted as a means to control generation costs and pollution, price-induced reallocation of electricity consumption within a day may actually increase net emissions depending on the source-generation mix of a region.

Suggested Citation

  • Harding, Matthew & Kettler, Kyle & Lamarche, Carlos & Ma, Lala, 2021. "The (Alleged) Environmental and Social Benefits of Dynamic Pricing," IZA Discussion Papers 14846, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14846
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    Cited by:

    1. Wang, Kaifeng & Zhong, Chunping & Yu, Rong, 2024. "The greenhouse gas reduction effect of critical peak pricing for industrial electricity: Evidence from 285 Chinese cities, 2003–2019," Energy Policy, Elsevier, vol. 190(C).

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    More about this item

    Keywords

    dynamic pricing; randomized experiment; load shifting; air pollution;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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