Pass-through of Emissions Costs in Electricity Markets / Natalia Fabra, Mar Reguant.

Format:

Book

Author/Creator:

Fabra, Natalia.

Contributor:

National Bureau of Economic Research.

Reguant, Mar.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19613.

NBER working paper series no. w19613

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We measure the pass-through of emissions costs to electricity prices and explore its determinants. We perform both reduced-form and structural estimations based on optimal bidding in this market. Using rich micro-level data, we estimate the channels affecting pass-through in a flexible manner, with minimal functional form assumptions. Contrary to many studies in the general pass-through literature, we find that emissions costs are almost fully passed-through to electricity prices. Since electricity is traded through high-frequency auctions for highly inelastic demand, firms have weak incentives to adjust markups after the cost shock. Furthermore, the costs of price adjustment are small.

Notes:

Print version record

November 2013.