THREE ESSAYS ON ADDRESSING NEW CHALLENGES FOR ENERGY POLICY

The three papers in this dissertation all deal with new challenges for energy policy.The first paper deals with mitigation of market power in deregulated wholesaleelectricity markets, while the second and third papers deal with reduction ofgreenhouse gas emissions.The first paper experimentally tests a novel mechanism used to suppress the exerciseof market power in New York City and neighboring West Chester. We find that thismechanism can reduce market prices. However, if generation owners have enoughmarket power even during periods without transmission-system congestion, as may betrue in some parts of the world, the owners are able to gradually raise the market pricewell above short-run marginal cost in spite of the mechanism. If they are not able todo this, the mechanism keeps the market price of electricity too low during times ofhigh demand to induce adequate investment in generation and energy conservation.The second paper simulates the Regional Greenhouse Gas Initiative, which willimpose a cap-and-trade program on the carbon dioxide emissions of the electric powersector in ten northeastern US states. Constraints in the power transmission system, analternating-current system, affect the cost of the policy and the emission increases itwill induce in neighboring states and provinces. To our knowledge, this is the firststudy that uses an alternating-current model to predict the effects of an environmentalpolicy. We find that there are important differences between our simulation?spredictions and those of a direct-current approximation.The third paper examines the possibility of time inconsistency in public decisionmaking.In time inconsistency, an individual?s preferences over a set of outcomeschange as a function of only his reference point in time relative to the outcomes. Weshow that time inconsistency in group decisions can lead to welfare losses. Through asimple experiment and historical examples, we produce evidence that timeinconsistency may exist in public decision-making, particularly when males areinvolved. We also discuss implications for public policy and means of reducing timeinconsistency.