JOINT ECON-RE: Investment, Emissions, and Reliability in Electricity Markets; Dr Jonathan Elliott (Johns Hopkins University)

Abstract:

This paper explores how to reduce emissions from electricity generation while preventing blackouts. Zero emissions wind and solar are intermittent, which can lead to blackouts if the entry of renewables causes more reliable power plants to retire. I build a structural dynamic oligopoly model of investment in generators of different energy sources. Using data from Western Australia I show that a combination of carbon taxes and capacity subsidies substantially reduces emissions while keeping reliable generators from retiring, thereby maintaining a low risk of blackouts. I also explore the impact of renewable subsidies and delaying an environmental policy’s implementation.

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