Assessing the Short-Run Economic Cost of Environmental Constraints on Hydropower Operations at Glen Canyon Dam

Abstract

Environmental externalities resulting from the construction and operation of a number of hydropower plants are now being reexamined. The focus of many recent analyses is on identifying new, often more restrictive, operational regimes which will improve downstream environmental conditions. These new regimes may create significant market and nonmarket benefits but constraints on hydropower operations frequently lead to economic costs. This paper introduces an hourly constrained optimization framework for estimating the short-run costs of restricting hydropower operations. Glen Canyon Dam, on the Colorado River in Arizona, is used as a case study. Newly available marketbased prices are employed.