We examine the effect of introducing a carbon charge on electricity generation. We model this by way of a two generator Cournot game over a two node electricity network. We find that within the electricity system, emissions of carbon dioxide can increase after a carbon charge is introduced.
BeamonJ. A.LeckleyT.MartinL. (2001). Power plant emission reductions using a generation performance standard. http://tonto.eia.doe.gov/ftproot/service/gpsstudy.pdf, Energy Information Administration.
2.
BorensteinS.BushnellJ.StoftS. (2000). The competitive effects of transmission capacity in a deregulated electricity industry. RAND Journal of Economics 31(2): 294-325.
3.
BuchananJ. M. (1969). External diseconomies, corrective taxes and market structure. American Economic Review 59: 174-177.
4.
FullertonD.MetcalfG. E. (2002). Cap and trade policies in the presence of monopoly and distortionary taxation. NBER Working Papers 8901, National Bureau of Economic Research, Inc.
5.
GopinathM.WuJ. (1999, November). Environmental externalities and the optimal level of market power. American Journal of Agricultural Economics 81: 825-833.
6.
GreenK. P.HaywardS. F.HassettK. A. (2007, June). Climate change: caps vs. taxes. American Enterprise Institute for Public Policy Research: Environment Policy Outlook 2.
7.
KuhnH. W. (2006, November). The Karush-Kuhn-Tucker theorem. http://webrum.uni-mannheim.de/pub/mokuhn/public/KarushKuhnTuckers.pdf, CDSEM Uni Mannheim.
8.
LipseyR. J.LancasterK. (1956-1957). The general theory of second best. The Review of Economic Studies 24(1): 11-32.
9.
MetcalfG. E. (2007, October). A proposal for a U.S. carbon tax swap: An equitable tax reform to address global climate change. The Hamilton Project, Brookings Institute.
10.
MetzlerC.HobbsB.PangJ.-S. (2003, June). Nash-Cournot equilibria in power markets on a linearized DC network with arbitrage: Formulations and properties. Networks and Spatial Economics 3(2): 123-150.
11.
NeuhoffK.BarquinJ.BootsM.EhrenmannA.HobbsB.RijkersF.VazquezM. (2005, May). Network-constrained Cournot models of liberalized electricity markets: the devil is in the details. Energy Economics 27(3): 495-525.
12.
RalphD.SmeersY. (2006). EPECs as models for electricity markets. In Power Systems Conference and Exposition.
13.
VivesX. (1999). Oligopoly Pricing: Old Ideas and New Tools. Boston: MIT Press.
14.
WolakF. (2009). An Assessment of the Performance of the New Zealand Wholesale Electricity Market. Report for the New Zealand Commerce Commission.
15.
YaoJ.OrenS. S.AdlerI. (2008, January-February). Modeling and computing two-settlement oligopolistic equilibrium in a congested electricity network. Operations Research 56(1): 34-47.
