CO/sub 2/ price dynamics: the implications of EU emissions trading for electricity prices &amp;amp; operations

Sijm, J.P.M.; Bakker, S.J.A.; Chen, Yihsu; Harmsen, Hanne; Lise, Wietze

doi:10.1109/pes.2006.1709269

Cited by 62 publications

(70 citation statements)

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“…In EU Member States with a lot of nuclear plants, like France, or in countries with many hydro installations, like Sweden, fossil fuel plants are not able to pass through their carbon costs (Sijm et al 2005). Also international competition with companies in countries outside the EU emissions trading scheme poses limits to passing on the carbon mark-up to consumers.…”

Section: Other Market Factorsmentioning

confidence: 99%

“…Econometric research has confirmed that energy producers partly pass on the market value of freely obtained CO 2 emission rights to energy consumers (e.g. Point Carbon 2008; Smale et al 2006;Frontier Economics 2006;Sijm et al 2005). This was and still is a ''hot item'' in the political and public debate: newspapers and policy magazines all over Europe have written about the windfall profits those companies would make.…”

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confidence: 99%

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Energy prices and emissions trading: windfall profits from grandfathering?

2009

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The greenhouse gas emissions trading scheme in the European Union primarily uses grandfathering until 2012, which means that polluters get emission rights free of charge based on their historical emissions. Energy consumers accuse energy producers of making windfall profits by incorporating the market value of those free rights into the energy prices. However, we develop a numerical example to illustrate that the reasoning of the producers is correct. We also explain why this market value is only partly passed on to consumers. We consider various measures and conclude that only auctioning the rights after 2012 nullifies the additional profits. Keywords

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Section: Other Market Factorsmentioning

confidence: 99%

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confidence: 99%

Energy prices and emissions trading: windfall profits from grandfathering?

2009

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“…In addition, in the North of Italy the degree of market concentration is relatively low and there is excess of generation capacity whereas in the South the degree of market concentration is very high and there are problems of scarcity of generation capacity 17 . Analysing separately these sub-markets, therefore, might allow us to check the robustness of the theoretical analysis with respect to the combined e¤ect of the di¤erent structural factors of the power market.…”

Section: Empirical Analysismentioning

confidence: 99%

Interaction of Carbon and Electricity Prices Under Imperfect Competition

Chernyavs’ka

Gullí

2007

SSRN Journal

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In line with economic theory, carbon ETS determines a rise in marginal cost equal to the carbon opportunity cost regardless of whether carbon allowances are allocated free of charge or not. Hence, common sense would suggest that .rms in imperfectly competitive markets will pass-through into electricity prices only a part of the increase in cost. Instead, by using the load duration curve approach and the dominant .rm with competitive fringe model, the analysis proposed in this paper shows that the result is ambiguous. The increase in price can be either lower or higher than the marginal CO2 cost depending on several structural factors: the degree of market concentration, the available capacity (whether there is excess capacity or not) and the power plant mix in the market; the allowance price and the power demand level (peak vs. off-peak hours). The empirical analysis of the Italian context (an emblematic case of imperfectly competitive market), which can be split in four sub-markets with different structural features, confirms the model predictions. Market power, therefore, can determine a significant deviation from the "full pass-through" rule but we can not know which is the sign of this deviation, a priori, i.e. without before carefully accounting for the structural features of the power market.

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“…In the context of the EU ETS, empirical evidence on the ability to pass-through carbon costs in the early phases of the EU ETS is still rather scarce, with the exception of the power sector. Sijm et al (2005Sijm et al ( , 2006aSijm et al ( , 2006b) provided initial empirical evidence of passing-through opportunity costs of EUAs to power prices for, among others, Germany, the Netherlands, France, Belgium. Zachmann and Hirschhausen (2008) substantiated the evidence using data from the European Energy Exchange in Leipzig and applying advanced econometric techniques.…”

Section: Introductionmentioning

confidence: 99%

Cost Pass-Through of the EU Emissions Allowances: Examining the European Petroleum Markets

Alexeeva-Talebi

2010

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10086.pdf Non-technical summaryUsing advanced time-series techniques, this paper explores the ability of European refineries to pass-through costs associated with the introduction of the EU Emissions Trading Scheme (ETS). The paper thereby fills, the gap in the literature by analysing the interactions between petrol prices and emissions allowances allocated to the refining industry under the EU ETS at the single country level. The analysis is conducted within a multi-national framework and as comprehensive as the weekly data permits, covering 14 EU member states. Given the nonstationarity of variables and the existence of the long-run relationships between the analysed time series, the application of a vector error correction model (VECM) is appropriate. These econometric techniques allow tracking a price transmission process which is induced by the EU ETS in general and by free allocation of allowances in particular while accounting for short-run and long-run dynamics. Our econometric analysis shows that refineries were capable to pass-through prices of EUAs to consumers during the first trading period [2005][2006][2007]. It also discloses the heterogeneity across the EU member states in long-and short-run responses of petrol prices to movements of EUA prices. We run two alternative specifications of the VECM at the country level to check the robustness of the results. Our central finding questions the policy outcome in which emissions from the refining sector will be largely benefiting from free allocation of allowances from 2013 onwards, whereas the power sector falls fully under the auctioning regime. This measure has been introduced to minimise the undesirable distribution impacts that resulted from handing out free permits to the power sector in the "warm-up phase". This paper shows that adverse distributional impacts were also present over the same time horizon in the refining sector. Abstract: This paper explores the ability of European refineries to pass-through costs associated with the introduction of the EU Emissions Trading Scheme (EU ETS). We estimated a sequence of vector error correction models (VECM) within a multi-national setting which covers 14 EU member states. Using weekly data at the country level, this paper finds a significant influence of prices for European Union Allowances (EUAs) on unleaded petrol retail prices during the trial phase of the EU ET...

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CO/sub 2/ price dynamics: the implications of EU emissions trading for electricity prices & operations

Cited by 62 publications

References 1 publication

Energy prices and emissions trading: windfall profits from grandfathering?

Energy prices and emissions trading: windfall profits from grandfathering?

Interaction of Carbon and Electricity Prices Under Imperfect Competition

Cost Pass-Through of the EU Emissions Allowances: Examining the European Petroleum Markets

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