Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance [report]

Stephen Holland, Erin Mansur
2007 unpublished
Economists have argued for electricity pricing that accurately reflects time-varying production costs, known as realtime pricing. While the effects on allocative efficiency and competitiveness have been examined, no previous literature has examined the environmental impacts of realtime pricing. In theory, realtime pricing would lead to a reduction in the intra-day variance of aggregate electricity usage, i.e., the electricity load shape. Some environmental advocates have argued that limiting
more » ... ed that limiting production from the dirty "peaking" power plants will reduce pollution. However, a reduction in load variance has an ambiguous effect on emissions, depending on whether the reduction in load variance leads to a shift toward generation technologies with higher or lower emissions. In this paper, we use exogenous variation in load variance to estimate the relationship between load variance and emissions of three major pollutants (SO 2 , NO X , and CO 2 ) for each of the ten U.S. electricity reliability regions. Contrary to advocates expectations, we find that in most regions, pollution will increase modestly in the short run. These findings are observed primarily in markets that have (1) a smaller share of peaking plants that burn fossil fuels relative to other markets, and (2) more coal than nuclear capacity relative to other markets.
doi:10.3386/w13508 fatcat:6pcw2a2q5bhijh5noewvds3h5e