This paper examines the impact of market organization on efficiency and emissions in the wholesale electricity market. Taking advantage of Texas' transition from a decentralized bilateral trading market to a centralized auction market, I find that information aggregation has a positive effect on market efficiency that dominates any change in market power incentives. Specifically, I show that, in the nine months following the transition, high-cost generators are displaced by low-cost generators in production, leading to a total cost saving of $30.7 million relative to the counterfactual. Although the centralized market reduces generation costs, it also has an unintended effect on pollution emissions. For moderate estimates of marginal damages, I find the increase in external costs of emissions completely offsets the productive efficiency gain.
Greener Fuel, Bluer Sky? The Impact of Motor Fuel Standards on Air Quality in China
This paper examines the impact of China's fuel sulfur regulation---in particular, the introduction of CHINA III fuel standards---on air quality. Using both a time-series regression discontinuity design and a difference-in-difference method, I find that the implementation of CHINA III gasoline reduces air pollution by 4-7 percent as measured by air pollution index (API). This implies annual health benefits of 3.0 billion dollars, dwarfing the upgrading costs of 28.2 million dollars. By contrast, the introduction of CHINA III diesel standard has only negligible impacts. Further investigation suggests that the diesel standard may not have been complied with due to the inability to pass costs through and the presence of a loophole in the diesel policy.