Power trade, welfare, and air quality

Official URL: http://dx.doi.org/10.1016/j.eneco.2017.08.014

We use detailed microdata from all generators in the Ontario wholesale electricity market to investigate cross border electricity trade and its impact on air emissions and welfare (consumer and producer surpluses) in,Ontario. Using the technical characteristics of the generators and financial data we run a competition model every hour: We examine how trade expansion across different parts of the interconnected power grid affects the efficiency in the Ontario market. We show that there is a significant welfare gain from power trade. The air emissions savings are also considerable. For instance, when hourly imports double from current levels CO2 emissions decrease around 13%, and market prices reduce 5.4%. In autarky, CO2, SO2, NOx emissions increase 12%, 22%, 16%, resp., the prices go up 5.8%, and the price volatility rises 12%. However, the impact of negative wholesale prices on market outcomes is small.