Evens Salies OFCE-DRIC

Abstract: In response to the climate change issue, many electric utilities introduce price schemes for inducing their customers to reduce electricity consumption. When a significant fraction of consumers find costly to save electricity, one would expect utilities to ‘pay ’ them to use less electricity. This paper suggests a model that helps to understand why a typical electric utility may rather prefer to price discriminate against its pro-environmental customers, by increasing the price of electricity for these latter. This result holds even when the utility is charged for its greenhouse gas emissions. But in this case the price increase is sufficiently small so as to induce energy saving also from customers who have a positive cost of doing so