Publications by PSE researchers

Emission trading systems are cornerstone policies to reduce carbon emissions. Although economic intuition suggests that broader allowance trading should be welfare improving, this paper proves that view can be wrong. Under an increasingly popular type of emissions trading scheme — tradable performance standards (TPS), multiple narrow markets can decrease emissions relative to a single unified market, so that restricting trade does not always harm welfare. We show analytically that, when intensity benchmarks are heterogeneous within a sector, this result can hold even if the well-known “implicit output subsidy” does not impact total output. Finally, we provide evidence that this concern can be of high practical relevance. Using a general equilibrium model of China’s TPS for 2020–2030, we show that broader trading results in significantly higher emissions (up to 10%), and decreases welfare relative to narrower markets when the social cost of carbon exceeds $91/tCO.

Between 2005 and 2021, France has generated more electricity from fossil-free resources (491 TWh/year on average) than its gross domestic consumption (481 TWh/year). Therefore, in terms of total surplus, the French electricity sector should have been barely hit, if at all, by the surge in fossil fuel prices during the 2022 energy crisis. In practice, however, the French government spent billions of euros in subsidies to electricity consumers, the incumbent utility – who operates the whole nuclear fleet – recorded its worst yearly financial result to date, and total electricity imports exceeded exports for the first time in more than 40 years. Although these outcomes can largely be attributed to bad luck, the extent to which they could have been mitigated through better market design and public policies is an open question. This article argues that existing policies, through their implied incentives to share and manage long-term risks, played a critical role in how France navigated the energy crisis. Consistently, reforming long-term risk-sharing mechanisms has emerged as the most pressing issue to address. Looking forward, however, updating short-term wholesale market design so as to better support a low-cost and reliable energy transition will likely prove increasingly important.

Ce projet documente et analyse l’impact des aides à la décarbonation sur trois volets : le ciblage et le recours aux aides du plan France Relance, les effets économiques et environnementaux des précédentes vagues d’aides à la décarbonation et en particulier du Fonds Chaleur administré par l’Ademe, et les premiers effets rétrospectifs des impacts économiques des aides à la décarbonation du plan France Relance.

Emission trading systems are cornerstone policies to reduce carbon emissions. Although economic intuition suggests that broader allowance trading should always be welfare improving, this paper proves that view can be wrong. Under an increasingly popular type of emissions trading scheme-tradable performance standards (TPS), multiple narrow markets can decrease emissions relative to a single unified market, so that restricting trade does not always harm welfare. We show analytically that, when intensity benchmarks are heterogeneous within a sector, this result can hold even if the well-known "implicit output subsidy" does not arise. Finally, we provide evidence that this concern is not a mere theoretical possibility but can actually be of high practical relevance. Using a general equilibrium model of China's TPS for 2020-2030, we show that broader trading results in significantly higher emissions (up to 10%), and decreases welfare relative to narrower markets when the social cost of carbon exceeds $91/tCO2 .

This paper estimates the relationship between investments in five distributed generation technologies and hourly net withdrawals from over 2,000 electricity distribution networks in France between 2005 and 2018. We find that investments in distributed wind and solar generation have little or no impact on the annual peak of hourly net withdrawals from the distribution grid, while investments in hydroelectric and thermal distributed generation significantly reduce it. An optimistic analysis of the impact of investments in battery storage suggests that high levels are required for distributed wind and solar to deliver similar reductions in the annual peak of hourly net withdrawals. Our results imply that public policies favoring distributed wind and solar generation over utility-scale generation cannot be rationalized by savings in future grid investments. Code Jel L94 – Electric Utilities Q42 – Alternative Energy Sources Q48 – Government Policy

Many public charging stations for electric vehicles in the United States are chargers installed at the premises of pre-existing businesses such as grocery stores or restaurants. This paper investigates the incentives of these retail businesses to install and operate charging stations. First, we note that observed pricing schedules for charging stations significantly depart from both first-best and monopoly pricing. We argue that a possible explanation is that many hosting facilities may install a charging station primarily as a strategy to attract more customers to their core business. Second, we use an imperfect competition model to study retail businesses’ incentives to invest in charging stations. We show that hosting facilities may be trapped in a prisoner’s dilemma where investing in a charging station decreases their profit in the long run. However, the equilibrium level of investments in public charging stations need not differ from the socially optimal outcome.

Because they differ in terms of technology, size and location, solar photovoltaic installations exhibit very heterogeneous levelized costs of producing electricity. Therefore, the present value cost of meeting a given trajectory of annual solar energy production depends on which projects are commissioned when: the observed sequence of investment decisions need not be cost-efficient. We propose a methodology to assess dynamic misallocation by comparing the present value cost of realized investments to a counterfactual optimal sequence of investments. Applying our methodology to France between 2005 and 2021, we find that the observed trajectory of annual solar production could have been obtained at a present value cost almost 30% lower than its realized value. Our optimized counterfactual suggests that investments in residential solar should have on average been postponed by 7 years, while investments in medium and large-scale installations should have occurred 2 to 4 years earlier.

This paper studies the consistency between two contradictory policies in the electricity industry. On the one hand, electricity systems are increasingly interconnected. On the other hand, reliability standards, whose value was typically set when countries were hardly interconnected, are still enforced at the national level. We show that enforcing autarky reliability standards may still reach the welfare optimum in the presence of interconnections, but only under two conditions. First, installed generation capacities should be determined jointly, while considering the whole power system. Second, reliability calculations should fully internalize external adequacy benefits occurring in neighboring systems. We run a numerical application for a set of European countries and find that existing interconnections may lead to generation adequacy benefits of around one billion euros per year, by enabling a 18.9 GW decrease in generation capacity. In our case study, regional coordination is found to be more important than fully internalizing external reliability benefits in adequacy simulations.