Competition and Environmental Policies in an Electricity Sector


Corinne Chaton Marie-Laure Guillerminet

In this paper, we study the impact of competition and environmental policy (feed-in tari¤s vs. the EU ETS) on investment, CO2 emissions and welfare in an electricity sector. For this purpose, we consider different market structures (private monopoly, planner that maximizes the social welfare, dyopoly) and two types of consumers (consumers depending on weather and the other ones). The demand specification is innovative and takes into account an incompressible consumption.Given the costs and demand functions we assume, competition increases CO2 emissions as it is highlighted in Mansur (2007). In duopoly, only the EU ETS seems to be the efficient policy in order to achieve the "3 x 20" aim: 20% of emissions reductions, 20% of production based on RES and 20% of energy efficiency. The EU ETS is effective to reduce CO2 emissions. The retained feed-in tariff policy is the most expensive for the "social welfare". Even if this policy seems to increase the "social welfare", feed-in tariffs increase the CSPE which is paid by consumers by higher electricity prices. It is also less effective in terms of emissions reduction.

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