Rich Sweeney, at Common Tragedies, raises the question “Is dynamic pricing green?”
Riffing off of Lynne’s article in Smart Grid News and a complementary post here on Knowledge Problem, Rich acknowledges that dynamic pricing for retail power can encourage load shifting away from peaks and may even reduce consumption overall. But, he suggests, even if dynamic pricing reduces consumption a little it may not reduce overall emissions from power generation.
The reason, he says, it that much peak load generation is natural gas fueled, while baseload generation tends to be mostly coal fueled. All the load shifting that dynamic pricing encourages will move consumption away from gas and toward coal. Given that coal generation tends to produce much higher levels of pollutants than gas, load shifting can increase emissions.
As a general matter, I think Sweeney is right, but a more precise answer could be had looking at the question on a region-by-region level.
- Some areas have more baseload hydro, for example, or nukes, in which case the shift from peak to off-peak could reduce emissions even absent any net conservation.
- In some cases — fewer and fewer with oil prices the way they are — peak generators run on fuel oil, and some small generators run on diesel. Coal typically produces higher emissions than fuel-oil powered generators, but the contrast isn’t as great as with gas.
- In the longer run, reducing peak consumption helps delay investment in new generating plants and transmission lines, thereby helping to avoid the environmental costs associated with that investment.
The real lesson here is that there is a difference between economizing on the consumption of electricity and economizing on the use of environmental resources. Putting a real price on retail electricity will bring about more efficient use of electric power, but if you want more economical use of environmental resources — such as, for example, clean air — then we need to put a real price on it, too.