Pass-through of emissions costs in electricity markets
Pass-through of emissions costs in electricity markets / Natalia Fabra & Mar Reguant. NBER Working Paper N° 19613, November 2013, 35 p. http://www.nber.org/papers/w19613
Full text access : http://idei.fr/doc/conf/eem/papers_2013/fabra.pdf
Authors’s abstract :
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.