Central to Energy Economics are demand fluctuations. These fluctuations are likely to be reflected in price changes on primary markets. However, it is a common practice to offer households constant pricing scheme.
I have been investigating the consequences of such pricing policy in the gas industry. A peculiarity of this sector (by contrast with electricity) consists in the possibility to smooth supply to the market thanks to storage. Even when focussing on the sole consumers well-being, it is not clear however that this possibility should translate into constant pricing. This question, that I still investigate, already gave rise to:
- "Une tarification saisonnière pour le gaz? Les coûts d'un schéma de régulation rigide pour un bien stockable" (In french)
Another issue that I have been considering over the last years is fuel switching which occurs, essentially in energy intensive industry, as a result of price fluctuations . This is a subject I'm working on together with Norbert Ladoux also from IDEI and Alain Bousquet a researcher associated to LERNA.
Electricity Market Integration
With Pierre-Olivier Pineau from HEC Montréal I'm looking at the effect of electricity trade upon environment. In
- "Environmentally Damaging Electricity Trade",
we have shown that hydro-power exports from Québec to the U.S. are actually likely to increase GHG emissions. This is because trade efficiency gains result, on average, in lower prices. Given hydro-power capacity, the increase in consumption that follows from lower prices can only be matched by an increase in thermal production.
We further study the consequences of electricity market integration in
- "Regulation and electricity market integration: When trade introduces inefficiencies",
where it is shown that a regulated monopoly has incentives to export toward a jurisdiction pricing at marginal cost up to inducing productive inefficiencies.
This says that the very fact of maintaining different pricing rules across trading jurisdictions can actually be very problematic. This point is illustrated empirically in a model tailored to study the impact of power trade between two provinces of Canada, Ontario and Quebec:
- "Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules"
which you can download here.