Is Real-Time Pricing Green?

The Environmental Impacts of Electricity Demand Variance

 

Stephen Holland and Erin T. Mansur


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NBER Working Paper 13508, October 2007.
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UCEI CSEM Working Paper-136r, September 2006.

Abstract:

 

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 US regions, namely those with more hydropower like the West. The effects are relatively small.