  The electricity industry has been one of the first to face technological
changes motivated by sustainability concerns. Whilst efficiency aspects of
market design have tended to focus upon market power concerns, the new policy
challenges emphasise sustainability. We argue that market designs need to
develop remedies for market conduct integrated with regard to environmental
externalities. Accordingly, we develop an incentive-based market clearing
mechanism using a power network representation with a distinctive feature of
incomplete information regarding generation costs. The shortcomings of price
caps to mitigate market power, in this context, are overcome with the proposed
mechanism.
