Is Real-Time Pricing Green?
The Environmental Impacts of Electricity Demand Variance
Stephen Holland and Erin T. Mansur
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Real-time pricing (RTP) of
electricity would improve allocative efficiency and limit wholesalers’ market
power. Conventional wisdom claims that RTP provides additional environmental
benefits. This paper argues that RTP will reduce the variance, both within- and
across-days, in the quantity of electricity demanded. We estimate the short-run
impacts of this reduction on SO2, NOx, and CO2 emissions. Reducing variance
decreases emissions in regions where peak demand is met more by oil-fired
capacity than by hydropower, such as the Mid-Atlantic. However, reducing variance
increases emissions in more