Is Real-Time Pricing Green? : The Environmental Impacts of Electricity Demand Variance

Real-time pricing (RTP) of electricity would improve the efficiency of consumption and investment and would lessen the potential harm from market power. Conventional wisdom has claimed that RTP has an additional environmental benefit. We argue that RTP will reduce variance of electricity load and estimate the short-run impacts of a reduction in variance on emissions of SO2, NOx, and CO2. According to our estimates, a reduction in load variance, either within- or across-day, would decrease emissions in regions where peak demand is met with oil-fired capacity rather than hydroelectric capacity. These regions include the Mid-Atlantic and Illinois areas. However, reducing variance would increase emissions in regions with more hydroelectric capacity, such as the Eastern Mid-West, the Southeast, the Great Plains, and the West. The effects are relatively small