Implications of CO2 emissions trading for short-run electricity market outcomes in northwest Europe

Chen, Yihsu; Sijm, J.P.M.; Hobbs, Benjamin F.; Lise, Wietze

doi:10.1007/s11149-008-9069-9

Cited by 110 publications

(58 citation statements)

References 27 publications

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“…Empirical studies [7,9] estimating the pass through rates of CO2 costs to power prices in EU countries [7] found that pass through rates range between 60% and 120% in EU countries under the assumption of perfect competition, while [9] showed that this rate is over 100% for The Netherlands, Belgium, Germany and France. In addition, [20] also found that cost pass through rates are close to 100% when the demand is inelastic, while this rate fell to around 80% with elastic demand.…”

Section: Distinctive Features Of the Korean Etsmentioning

confidence: 99%

“…Lower demand elasticity for electricity would increase the level of cost pass through [9,20,21], making the inclusion of the indirect emissions within the ETS have very little effect. Thus, the value for demand elasticity of electricity has been calculated by running the BAU scenario with an exogenous output tax increase/decrease by 1% on the electricity sector.…”

Section: Modelling Direct and Indirect Emissionsmentioning

confidence: 99%

“…CGE models have been used heavily to compare design options for ETSs, including the EU ETS [7][8][9][10][11] and Korean ETS [12,13]. However, there has been no attempt to simulate indirect emissions accounting, which is inherent in the design of the Korean ETS.…”

Section: Introductionmentioning

confidence: 99%

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Efficiency versus Equality: Comparing Design Options for Indirect Emissions Accounting in the Korean Emissions Trading Scheme

Yeo

Lee

2015

Sustainability

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Abstract:The Korean emissions trading scheme (ETS) has one special characteristic that makes it different from other schemes, such as the EU ETS. While the other schemes consider only direct emissions from fossil fuels, the Korean ETS also regulates indirect emissions arising from the consumption of electricity. The problem of double counting arises under this setting, in which emissions from the power sector can be accounted for twice, when electricity is produced and consumed. This study aims to compare design options on indirect emissions accounting for the Korean ETS using a computable general equilibrium model. Four scenarios are generated for options accounting for direct and/or indirect emissions and are evaluated in terms of efficiency and equality. The result shows that the ETS operates most efficiently when only direct emissions are considered. However, the option that includes both direct and indirect emissions produces a competent result in terms of equality by spreading the economic burden of emissions reduction among industries. We conclude that this option can be an alternative to meet the key purposes of the Korean ETS.

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Section: Distinctive Features Of the Korean Etsmentioning

confidence: 99%

Section: Modelling Direct and Indirect Emissionsmentioning

confidence: 99%

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Efficiency versus Equality: Comparing Design Options for Indirect Emissions Accounting in the Korean Emissions Trading Scheme

Yeo

Lee

2015

Sustainability

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“…Some authors find that the aggregated power generation sector benefits even if allowances are fully auctioned. This is shown for the UK (Martinez and Neuhoff 2005) and for Northwestern Europe (Chen et al 2008). Similarly, Burtraw et al (2002) report for the US that only 9% of all allowances would need to be grandfathered to preserve total producer profits when introducing CO2 certificates.…”

Section: Literature Reviewmentioning

confidence: 94%

Redistribution Effects of Energy and Climate Policy: The Electricity Market

Hirth

Ueckerdt

2012

SSRN Journal

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Final submission to Energy PolicyAbstract -Energy and climate policies are usually seen as measures to internalize externalities. However, as a side effect, the introduction of these policies redistributes wealth between consumers and producers, and within these groups. While redistribution is seldom the focus of the academic literature in energy economics, it plays a central role in public debates and policy decisions. This paper compares the distributional effects of two major electricity policies: support schemes for renewable energy sources, and CO2 pricing. We find that the redistribution effects of both policies are large, and they work in opposed directions. While renewables support transfers wealth from producers to consumers, carbon pricing does the opposite. More specifically, we show that moderate amounts of wind subsidies can increase consumer surplus, even if consumers bear the subsidy costs. CO2 pricing, in contrast, increases aggregated producer surplus, even without free allocation of emission allowances; however, not all types of producers benefit. These findings are derived from an analytical model of electricity markets, and a calibrated numerical model of Northwestern Europe. Our findings imply that if policy makers want to avoid large redistribution they might prefer a mix of policies, even if CO2 pricing alone is the first-best climate policy in terms of allocative efficiency. CO2 pricing and renewables support have strikingly different impacts on rents  Carbon pricing increases producer surplus and decreases consumer surplus  Renewable support schemes (portfolio standards, feed-in tariffs) do the opposite  We model these impacts theoretically and quantify them for Europe  Redistribution of wealth is found to be significant in size

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“…5 In comparison, our equilibrium pass-through rate (with unconditional allocation of quotas) is actually 3 For instance, Bunn and Fezzi (2007) for the UK, and Kirat and Ahamada (2011) for Germany and France. 4 See Chen et al (2008) for an earlier version of the same model. 5 For instance, Sijm et al (2006) for Germany and the Netherlands, Simshauser andDoan (2009) for Australia, andFell (2010) for the Nordic market.…”

Section: Introductionmentioning

confidence: 99%

Price and Welfare Effects of Emission Quota Allocation

Rosendahl

Golombek

Kittelsen³

2011

SSRN Journal

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Price and welfare effects of emission quota allocation Abstract:We analyze how different ways of allocating emission quotas may influence the electricity market. Using a large-scale numerical model of the Western European energy market, we show that different allocation mechanisms can have very different effects on the electricity market, even if the total emission target is fixed. This is particularly the case if output-based allocation (OBA) of quotas is used, with gas power production substantially higher, partly at the expense of renewable and coal power, than if grandfathering and auctioning based mechanisms are used. The price of emissions is almost twice as high. Moreover, even though electricity prices are lower, the welfare costs of attaining a fixed emission target are significantly higher. The paper analyzes other allocation mechanisms as well, leading to yet more outcomes in the electricity market. The numerical results for OBA are supported by theoretical analysis, with some new general results.

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Implications of CO2 emissions trading for short-run electricity market outcomes in northwest Europe

Cited by 110 publications

References 27 publications

Efficiency versus Equality: Comparing Design Options for Indirect Emissions Accounting in the Korean Emissions Trading Scheme

Efficiency versus Equality: Comparing Design Options for Indirect Emissions Accounting in the Korean Emissions Trading Scheme

Redistribution Effects of Energy and Climate Policy: The Electricity Market

Price and Welfare Effects of Emission Quota Allocation

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