Greed is good? Of equilibrium impacts in environmental regulation
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A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
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2023-10
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Language
en
Pages
14
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Journal of Environmental Economics and Management, Volume 122
Abstract
This paper presents a novel method to quantify the market equilibrium impacts of tighter environmental policies. The approach is taken to evaluate the welfare effects of emerging environmental regulations to protect the biodiversity of river ecosystems that put pressure on reducing hydropower generation capacity. A dataset of 129 million bids in the Nordic electricity market is used to calculate how small reductions in hydropower capacity change market outcomes and surpluses hour-by-hour for the years 2011–2022. Reaching the EU Biodiversity Strategy target of 2030 is estimated to reduce 56 MW of hydropower capacity in Finland. Such a change would lead to quantifiable welfare losses of €62 million over time, not counting environmental benefits. Notably, the producer surplus increases by €318 million over time through electricity market price changes, suggesting that instead of lobbying against biodiversity enhancing regulation, agreeing to an industry-wide implementation could benefit both the environment and the firms. Yet the fact that consumer costs increase more than the mere implementation cost reads as a sign of caution when tighter biodiversity policies are introduced.Description
Funding Information: I thank the editor and three anonymous referees, as well as Lassi Ahlvik, Erik Ansink, Janne Artell, Antti Belinskij, Daniel Hauser, Antti Iho, Markku Kallio, Saija Koljonen, Matti Liski, Niko Soininen, Juuso Välimäki, and participants at seminar in Helsinki and at EAERE 2021 and EAERE 2022 conferences for valuable comments and suggestions. Funding from the Academy of Finland project Regoverning the Existing Hydropower System is gratefully acknowledged. The author certifies that he has no affiliations with or involvement in any organization or entity with any financial interest, or non-financial interest in the subject matter or materials discussed in this manuscript. Publisher Copyright: © 2023 The Author(s)
Keywords
Biodiversity conservation, Cost incidence, Electricity markets, Environmental regulation, Hydropower, Storage
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Citation
Vehviläinen, I 2023, ' Greed is good? Of equilibrium impacts in environmental regulation ', Journal of Environmental Economics and Management, vol. 122, 102892 . https://doi.org/10.1016/j.jeem.2023.102892