Power trade, welfare, and air quality

We use detailed microdata from all generators in the Ontario wholesale electricity market to investigate cross-border electricity trade and its impact on air emissions and welfare (consumer and producer surpluses) in Ontario. Using the technical characteristics of the generators and financial data we run a competition model every hour. We examine how trade expansion across different parts of the interconnected power grid affects the efficiency in the Ontario market. We show that there is a significant welfare gain from power trade. The air emissions savings are also considerable. For instance, when hourly imports double from current levels CO2 emissions decrease around 13%, and market prices reduce 5.4%. In autarky, CO2, SO2, NOx emissions increase 12%, 22%, 16%, resp., the prices go up 5.8%, and the price volatility rises 12%. However, the impact of negative wholesale prices on market outcomes is small.