Liberalization and CO₂ Emissions in Electricity Supply: An Empirical Analysis Using Panel Data

Abstract

In this study, I have performed a quantitative analysis of the changes in CO₂ emissions and electricity prices in OECD countries after the enforcement of electricity liberalization policies and CO₂ emission reduction policies. Electricity liberalization commenced in 1987 in Chile and in 1990 in Britain; since then, it has spread to many parts of the world. In Japan, the wholesale market of electricity was liberalized in 1995, and the retail market was partially liberalized in 2000. Despite the considerable experience gained during the intervening 2 decades, there remain a number of contentious market design and implementation issues. Moreover, while market reforms have addressed many of the shortcomings of the regulated or centrally planned era, they have introduced new problems. Nearly all market reform initiatives were subjected to redesigning and/or refinements, referred to as “reform of reforms” by Joskow (2006b), to address deficiencies in their original structure. In addition to lowering the electricity prices through electricity liberalization, advanced countries have to deal with global warming in order to achieve the goals of the Kyoto Protocol. Therefore, each country has introduced policy instruments for CO₂ emission reduction, such as quota obligations that impose a minimum production of electricity from renewable energy sources.