Strategic Pricing in Electricity Markets with Pollution Constraints

Abstract: We introduce a new model for a regulated day-ahead type auction-based electrical market in which the system operator can measure and limit the producer's emissions when choosing its optimal dispatch. We prove properties of this market model that describe it as a generalization to other previous works in the electrical market literature. Furthermore, we use standard sensitivity analysis tools to measure the impact of these pollution variables on market equilibria and present numerical examples of this effect.