We study the problem of deriving financially adequate prices for trading a perishable commodity under a centralized auction with environmental considerations. Our model is based on an electricity market, with producers using conventional technologies with byproduct emissions; and environmentally clean producers subject to exogenous weather realizations, but lower emissions in production. For this purpose, we derive a new financially adequate market clearing pricing scheme. Unlike related financially adequate pricing schemes that only take into account the marginal market costs associated with market clearing commodity demands, the proposed pricing scheme also takes into account the marginal market costs associated with the market participants operating at maximum capabilities. The proposed pricing scheme allows to analyze the effects of environmental limitations in the market, as it internalizes, in the pricing signals, the costs or benefits associated with compliance of these limits by the market participants; and in particular, conventional technology producers including transit operators.

Alberto J. Lamadrid L. (Ph.D. Applied Economics and Management, Cornell University; M.A. Economics New York University; B.Sc. Electrical Engineering, Universidad de los Andes, Colombia) is associate professor and James T. Kane Faculty Fellow in the Economics Department at the College of Business and Economics, and in the Industrial and Systems Engineering Department at the P.C. Rossin College of Engineering and Applied Science at Lehigh University. He is also associate director of the Institute for Cyber Physical Infrastructure and Energy at Lehigh University. His research interests are in electricity and environmental markets and mechanisms; environmental change in social and ecological systems; and strategies for resilient systems and sustainable planning.