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CEIC-04-05

"Clean air and affordable electricity?"

Dalia Patiño-Echeverri, Zhiyong Wu and Marija Ilic

Abstract:
Performance criteria of the power industry such as environmental impact, electricity prices, and quality/reliability of the service are functions of fuel market, government regulations, the state of the art of technology, and the combined actions of different industry participants. We argue that to prescribe optimal government interventions, it is imperative to understand as much as possible about the dynamics of the interaction between industry participants, as well as the interactions with fuel and technology markets. In this paper we propose a model that relates air emissions and electricity prices with government policies regarding allocation of emissions allowances, fines, subsidies and investments in R&D. We present results of the simulation of a simplified model.

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