Great Britain’s carbon emissions from electricity generation fell by two-thirds between 2012 and 2019, providing an important example for other nations. This rapid transition was driven by a complex interplay of policies and events: investment in renewable generation, closure of coal power stations, raising carbon prices and energy efficiency measures. Previous studies of the impact of these simultaneous individual measures miss their interactions with each other and with exogenous changes in fuel prices and the weather. Here we use Shapley values, a concept from cooperative game theory, to disentangle these and precisely attribute outcomes (CO2 saved, changes to electricity prices and fossil fuel consumption) to individual drivers. We find the effectiveness of each driver remained stable despite the transformation seen over the 7 years we study. The four main drivers each saved 19–29 MtCO2 per year in 2019, reinforcing the view that there is no ‘silver bullet’, and a multi-faceted approach to deep decarbonisation is essential.
Electricity market manipulation enforcement actions have moved from conventional analysis of generator market power in real-time physical markets to material allegations of sustained crossproduct price manipulation in forward financial markets. A major challenge is to develop and apply forward market analytical frameworks and models. This task is more difficult than for the real-time market. An adaptation of cross-product manipulation models from cash-settled financial markets provides an existence demonstration under uncertainty and asymmetric information. The implications of this analysis include strong empirical predictions about necessary randomized strategies that are not likely to be observed or sustainable in electricity markets. Absent these randomized strategies and other market imperfections, the means for achieving sustained forward market price manipulation remains unexplained.
Keywords: market manipulation; electricity markets; limits to arbitrage; asymmetric information
This paper examines carbon tax design options in the United States using an intertemporal computable general equilibrium model of the world economy called G- Cubed. Four policy scenarios explore two overarching issues: (1) the effects of a carbon tax under alternative assumptions about the use of the resulting revenue, and (2) the effects of a system of import charges on carbon-intensive goods (“border carbon adjustments”).
Excerpt from the Executive Summary:
Organized wholesale electricity markets were created to address burgeoning costs of new power generation under the traditional regulatory scheme and to encourage innovation through free-enterprise competition. The discipline of the marketplace promised lower costs and greater efficiencies. Two decades of experience and numerous studies have demonstrated competitive wholesale markets in PJM and elsewhere bring increased operational efficiency and innovation, resulting from transparent market prices and the benefits of single, independent dispatch across a broad region. These benefits are realized through economies of scale that permit optimization of a large and diverse set of resources and load. The resulting efficiencies are measured in reduced heat rates and increased capacity factors.
However, as a host of organic and external factors change the power supply landscape, some have questioned the efficacy of competitive wholesale markets at promoting the most efficient entry and exit of resources – especially compared to traditional utility regulation with administrative planning and direction, such as under a state-integrated resource plan. Various forces, including federal and state public policies, low-priced domestic natural gas and static or declining levels of wholesale electricity consumption, have challenged incumbent or “legacy” generation resources by increasing operating costs, creating capital investment needs and reducing revenues realized in PJM’s energy, capacity and ancillary service markets. For the least efficient of these resources – older, small coal units, single-unit nuclear stations and older, high-heat-rate natural gas and oil-fired generation – these cost and revenue pressures have threatened their ongoing viability and not unexpectedly have led to retirements in many cases.
Consequently, some observers have questioned whether wholesale markets have forced premature retirements of viable legacy generating resources and whether markets can be relied upon to ensure adequate power supplies in light of the retirements. The questions raised with regard to decisions and outcomes related to the changing nature of the supply portfolio in PJM can be summarized as:
Can we rely on PJM’s organized wholesale electricity market to efficiently and reliably manage the entry and exit of supply resources as external forces create tremendous uncertainty and potential industry transformation?
The goal of this paper is to answer this question. In doing so, this paper does not present itself as an exhaustive or scientific analysis of what are complex issues characterized by numerous variables. In some cases, the value proposition brought to the generation investment decision by competitive markets can be shown with a high degree of confidence. In other cases, the relative advantage of a competitive versus a regulated paradigm in efficiently bringing in new generation and exiting inefficient generation is more arguable. Finally, certain challenges and difficult outcomes necessarily result from the operation of PJM markets in driving investment decisions – challenges and difficulties involving choices between often-competing social and political interests. In contrast, when investment decisions are driven by utilities and their regulators, a trade-off between diverging policy interests can be made directly and explicitly, though not necessarily from a well-informed understanding of the trade-off.