THREE ESSAYS ON ADDRESSING NEW CHALLENGES FOR ENERGY POLICY
The three papers in this dissertation all deal with new challenges for energy policy. The first paper deals with mitigation of market power in deregulated wholesale electricity markets, while the second and third papers deal with reduction of greenhouse gas emissions. The first paper experimentally tests a novel mechanism used to suppress the exercise of market power in New York City and neighboring West Chester. We find that this mechanism can reduce market prices. However, if generation owners have enough market power even during periods without transmission-system congestion, as may be true in some parts of the world, the owners are able to gradually raise the market price well above short-run marginal cost in spite of the mechanism. If they are not able to do this, the mechanism keeps the market price of electricity too low during times of high demand to induce adequate investment in generation and energy conservation. The second paper simulates the Regional Greenhouse Gas Initiative, which will impose a cap-and-trade program on the carbon dioxide emissions of the electric power sector in ten northeastern US states. Constraints in the power transmission system, an alternating-current system, affect the cost of the policy and the emission increases it will induce in neighboring states and provinces. To our knowledge, this is the first study that uses an alternating-current model to predict the effects of an environmental policy. We find that there are important differences between our simulation?s predictions and those of a direct-current approximation. The third paper examines the possibility of time inconsistency in public decisionmaking. In time inconsistency, an individual?s preferences over a set of outcomes change as a function of only his reference point in time relative to the outcomes. We show that time inconsistency in group decisions can lead to welfare losses. Through a simple experiment and historical examples, we produce evidence that time inconsistency may exist in public decision-making, particularly when males are involved. We also discuss implications for public policy and means of reducing time inconsistency.
economics; environment; energy; electricity; market power; automatic mitigation procedure; time inconsistency; carbon dioxide; greenhouse gas