The invisible polluter: Can regulators save consumer surplus

Consider an electricity market populated by competitive agents using thermal generating units. Such generation involves the emission of pollutants, on which a regulator might impose constraints. Transmission capacities for sending energy may naturally be restricted by the grid facilities. Both pollution standards and trans-mission capacities can impose several constraints upon the joint strategy space of the agents. We propose a coupled constraints equilibrium as a solution to the reg-ulator’s problem of avoiding both congestion and excessive pollution. Using the coupled constraints ’ Lagrange multipliers as taxation coefficients the regulator can compel the agents to obey the multiple constraints. However, for this modification of the players ’ payoffs to induce the required behaviour a coupled constraints equi-librium needs to exist and must also be unique. A three-node market example with a dc model of the transmission line constraints described in [8] and [2] possesses these properties. We extend it here to utilise a two-period load duration curve and, in result, obtain a two-period game. The implications of the game solutions obtained for several weights, which the regulator can use to vary the level of gener-ators ’ responsibilities for the constraints ’ satisfaction, for consumer and producer surpluses will be discussed