New entrant allocation in the Nordic energy sectors: incentives and options in the EU ETS

Åhman, Markus; Holmgren, Kristina

doi:10.1080/14693062.2006.9685611

Cited by 24 publications

(15 citation statements)

References 11 publications

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“…In the NO x budget program, for example, where individual states determine the allocation of allowances, most states have set‐asides for new sources, and sources that retire eventually lose their allocations. Adjustments to allocation based on decisions about the level of production also are widespread in the EU ETS, and these adjustments can cause less economic and higher‐polluting facilities to be preferred investments (Åhman and Holmgren 2006). Furthermore, eliminating future allocations for sources that retire provides a financial incentive for continuing the operation of existing facilities that may be inefficient and that otherwise would retire, except for the value of the allowances that they earn by remaining in operation.…”

Section: Allocation Of Emissions Allowancesmentioning

confidence: 99%

Tradable rights to emit air pollution*

Burtraw

Evans

2008

Aus J Agri & Res Econ

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The use of cap‐and‐trade to regulate air pollution promises to achieve environmental goals at lower cost than traditional prescriptive approaches. Cap‐and‐trade has been applied to various air pollutants including sulphur dioxide, nitrogen oxides and volatile organic compounds in the United States and carbon dioxide (CO2) in the European Union. This corresponds to what is likely to become the most expensive environmental undertaking in history – the effort to reduce the heating of the planet. However, the efficacy of a cap‐and‐trade policy for CO2 depends in large part on the design of the program. In addition to the level of the cap, the most important decision facing policymakers will be the initial allocation of emissions allowances. The method used to allocate tradable emissions allowances will have significant influence on the distributional impact and efficiency of the program.

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Section: Allocation Of Emissions Allowancesmentioning

confidence: 99%

Tradable rights to emit air pollution*

Burtraw

Evans

2008

Aus J Agri & Res Econ

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“…2008). The size of a subsidy can be large as demonstrated in the Nordic electricity generation sector where the permits received by generators for investment in new low emissions plant ranged from 35 to 51 per cent of annualised fixed costs during phase I of the European Union emission trading system (EU ETS), and 14 to 56 per cent for phase II (Åhman and Holmgren 2006). The decision to retire existing high emissions plant may be delayed if allocations of free permits are contingent on the plant remaining operational, as is the case under a closure rule where permit allocations cannot be transferred to new plant, or the criteria for receiving allocations favour GHG emitting technologies (Neuhoff et al.…”

Section: The Methods Of Allocating Permitsmentioning

confidence: 99%

“…2008). A closure rule was found to have extended the life of high emissions generation plants in the EU ETS (Åhman and Holmgren 2006; Åhman et al. 2007).…”

Section: The Methods Of Allocating Permitsmentioning

confidence: 99%

“…A key issue is whether the method of allocating permits is likely to have an impact on the external financing of a plant. While the difference in cash flows arising from auctioned and free permits may impact on a generator’s financing costs and in turn affect the decision to invest or retire plant (Koutstaal 1997; Åhman and Holmgren 2006; IEA 2007), it should not affect the availability of capital to a generator (Burtraw and Evans 2009).…”

Section: The Methods Of Allocating Permitsmentioning

confidence: 99%

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Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme

Lambie

2010

Aus J Agri & Res Econ

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The objective of a greenhouse gas (GHG) emissions trading scheme (ETS) is to reduce emissions by transitioning the economy away from the production and consumption of goods and services that are GHG intensive. A GHG ETS has been a public policy issue in Australia for over a decade. The latest policy initiative on an ETS is the proposed Carbon Pollution Reduction Scheme (CPRS). A substantial share of Australia's total GHG reduction under the CPRS is expected to come from the electricity generation sector. This paper surveys the literature on investment behaviour under an ETS. It specifically focuses on the relationship between the design of an ETS and a generator's decisions to invest in low emissions plant and retire high emissions plant. The proposed CPRS provides the context for presenting key findings along with the implications for the electricity generation sector's transition to lower emissions plant. The literature shows that design features such as the method of allocating permits, the stringency of the emissions cap along with permit price uncertainty, provisions for banking, borrowing and internationally trading permits, and the credibility of emissions caps and policy uncertainty may all significantly impact on the investment and retirement behaviour of generators.

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“…Environmental targets can be undermined if production is able to shift away from the jurisdictional reach of the regulator through either leakage or reshuffling of production sources. 2 These concerns over regional US policies reflect similar, more general concerns with leakage as a challenge even for international climate agreements. In the crafting of European CO2 market, as well as the American Clean Energy and Security Act (ACESA) that would establish a national cap in the United States, much attention has been paid to the "competitiveness" question, which is fundamentally related to how vulnerable domestic producers are to leakage from imports.…”

Section: Introductionmentioning

confidence: 95%

Regulation, Allocation, and Leakage in Cap-and-Trade Markets for CO2

Bushnell¹,

Chen²

2009

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The allocation of emissions allowances is among the most contentious elements of the design of cap-and-trade systems. In this paper we develop a detailed representation of the US western electricity market to assess the potential impacts of various allocation proposals. Several proposals involve the "updating" of permit allocation, where the allocation is tied to the ongoing output, or input use, of plants. These allocation proposals are designed with the goals of limiting the pass-through of carbon costs to product prices, mitigating leakage, and of mitigating costs to high-emissions firms. However, some forms of updating can also inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms. Rather than mitigating the impact on high carbon producers, the net operating profit of such firms can actually be lower under input-based updating than under auctioning. This is due to the fact that product prices (and therefore revenues) are lower under input-based updating, but overall compliance costs are relatively comparable between auctioning and input-based updating. In this way, the anticipated benefits from allocation updating are reduced and further distortions are introduced into the trading system.

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New entrant allocation in the Nordic energy sectors: incentives and options in the EU ETS

Cited by 24 publications

References 11 publications

Tradable rights to emit air pollution*

Tradable rights to emit air pollution*

Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme

Regulation, Allocation, and Leakage in Cap-and-Trade Markets for CO2

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