Pollution under environmental regulation in energy markets

This book aims at identifying the mechanisms through which imperfect competition in energy markets can affect the performance of environmental policy. Two vertical related markets are investigated: 1) the electricity market (output market); 2) the market for natural gas (input market). The analysis shows that, when both markets are imperfectly competitive, imperfect competition may lessen the performance of environmental policy, that is its ability to reduce pollution and/or its ability to minimize the cost of meeting environmental targets. This would happen especially when firms pursue strategies besides profit maximization, the alternative technology to natural gas is low polluting (increasing competitiveness of low carbon technologies) and environmental regulation is based on emissions trading with benchmarking of emissions allowances.