CLIMATE CHANGE POLICY AND ITS EFFECT ON MARKET POWER IN THE GAS MARKET | Zendy

Newbery David M. | Zendy

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CLIMATE CHANGE POLICY AND ITS EFFECT ON MARKET POWER IN THE GAS MARKET

Author(s) -

Newbery David M.

Publication year - 2008

Publication title -

journal of the european economic association

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 7.792

H-Index - 93

eISSN - 1542-4774

pISSN - 1542-4766

DOI - 10.1162/jeea.2008.6.4.727

Subject(s) - economics , electricity , electricity price , price elasticity of demand , greenhouse gas , emissions trading , market power , electricity market , lerner index , climate change , monetary economics , natural resource economics , agricultural economics , microeconomics , ecology , monopoly , electrical engineering , biology , engineering

The European Emissions Trading Scheme (ETS) limits CO 2 emissions from covered sectors, especially electricity (accounting for about 56%). At $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)

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