Essays in energy and environmental markets

This dissertation studies the strategic behavior of major participants in electricity markets. The first chapter, Who benefits from ratepayer funded auctions of transmission congestion contracts? Evidence from New York, examines the participation of electricity retailers (firms that buy wholesale energy), electricity generators (firms that produce and sell wholesale energy) and financial traders (firms with no physical interests) in auctions for transmission congestion contracts. Transmission congestion contracts are derivative products that electricity retailers and generators can use to change their future wholesale electricity price exposure to a different location. U.S. Congress is concerned by large financial trader profits in auctions for these derivatives because the payouts are funded by ratepayers, not willing counterparties. I study firm-level positions in the New York Wholesale Electricity Market to investigate the causes of this concern. I find that some financial traders earn systematic profits when they buy illiquid products, potentially improving liquidity and price signals on these and related products. Given that electricity retailers buy so few of these products, the potential benefits resulting from trader actions are discussed. The second chapter, Tax induced emissions? Estimating short-run emission impacts from carbon taxation under different market structures, studies the strategic responses by electricity generators in the Western Australian wholesale electricity market following the introduction of a carbon tax. I find that the introduction of a carbon tax increased short-run carbon emissions in this imperfectly competitive market. The unique feature of the Western Australian setting is that the same carbon tax was introduced and later repealed, but the market structure differed at each event. At the repeal event, the dominant firm had less incentive to exercise unilateral market power. Then, the opposite result is observed -- emissions were lower with the tax. I show how the short-run impact of pollution taxation in imperfect markets depends on production technologies, market structure and the size of the tax. In the final chapter, Promoting energy efficiency in emerging economies through consumer education: Results from a field experiment in Mexico, I study (with co-authors Ognen Stojanovski, Mark Thurber, Frank Wolak and Juan Enrique Huerta Wong) how households responded to an informational treatment on electricity pricing that was offered to randomly-selected households in Mexico in Puebla. The 20-minute, in-person treatment was designed to educate households on how their electricity use translates to money spent on their electricity bill, and was free of normative content. On average, households receiving the treatment reduced electricity use, especially those that faced the highest marginal prices in the nonlinear electricity tariff. The estimated impacts were durable, with no observed rebound for at least a year. In addition, the magnitude of electricity use reductions was largest for those with less educational attainment. Our intervention was tailored for an emerging economy setting, was cost-effective in regions with low labor costs, and was met with high acceptance rates. These results emphasize the importance of removing information barriers in transitioning economies that are restructuring their energy sectors.

Keywords: Economics.
Advisor: Wolak Frank A. 
Kolstad Charles D. 
Reiss Peter