American Economic Review Vol. 104 No. 9 2014
Pass-Through of Emissions Costs in Electricity Markets
Abstract
We measure the pass-through of emissions costs to electricity prices. We perform both reduced-form and structural estimations based on optimal bidding in this market. Using rich micro-level data, we estimate the channels affecting pass-through in a flexible manner, with minimal functional form assumptions. Contrary to many studies in the general pass-through literature, we find that emissions costs are almost fully passed through to electricity prices. Since electricity is traded through high-frequency auctions for highly inelastic demand, firms have weak incentives to adjust markups after the cost shock. Furthermore, the costs of price adjustment are small.
- DOI
- 10.1257/aer.104.9.2872
- Volume
- 104
- Issue
- 9
- Pages
- 2872-2899
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref