Short Term Electric Production Technology Switching Under Carbon Cap and Trade

Abstract

This study examines fuel switching in electricity production following the introduction of the European Union's Emissions Trading System (EU ETS) for greenhouse gas emissions. A short-run restricted cost equation is estimated with carbon permits, high-carbon fuels, and low carbon fuels as variable inputs. Shadow values and substitution elasticities for carbon-free energy resources from nuclear, hydroelectric and renewable sources are imputed from the cost equation. The empirical analysis examines 12 European countries using monthly data on fuel use, prices, and electricity generation during the first phase of the European Emissions Trading System. Despite low emission permit prices, this study finds statistically significant substitution between fossil fuels and carbon free sources of energy for electric power production. Significant substitution between fossil fuels and nuclear energy also was found. Still, while 18 of the 20 substitution elasticities are statistically significant, they are all less than unity, consistent with limited substitution. Overall, these results suggest that prices for carbon emission permits relative to prices for carbon and carbon free sources of energy do matter but that electric power producers have limited operational flexibility in the short-run to satisfy greenhouse gas emission limits.

Production decisions in a hybrid manufacturing–remanufacturing system with carbon cap and trade mechanism

“…Drake (2012) studies the carbon tariffs' effects with production technology choice, but does not consider remanufacturing issues and carbon cap and trade policy. Similarly, Considine and Larson (2012) investigate the issue of electric production technology switching without considering remanufacturing under carbon cap and trade. Zhang and Xu (2013) analyze the optimal policy of multi-item production decisions with CCT-mechanism, assuming the demands of different products are independent.…”

Research on the Impact of Various Emission Reduction Policies on China’s Iron and Steel Industry Production and Economic Level under the Carbon Trading Mechanism

“…Anger [3], Chen and Tseng [4], and Alberola [5] discussed the application of carbon trading mechanisms in electricity, the manufacturing industry, and aviation. Considine and Larson [6] examined fuel switching in electricity production following the introduction of the European Union's Emissions Trading System (EU ETS) for greenhouse gas emissions. Shen et al [7] used structural modeling methods to determine the factors affecting the carbon trading mechanisms' implementation in construction industry and explained the complex relationship between factors.…”

An optimization decision support approach for risk analysis of carbon emission trading in electric power systems

“…During the past decades, many scholars employed CET to plan CO 2 mitigation in EPS, while research efforts were mainly based on deterministic mathematical approaches (Haurie and Viguier, 2003;Chappin and Dijkema, 2009;Cong and Wei, 2010;Sadegheih, 2011;Considine and Larson, 2012;Shen et al, 2012;Chapple et al, 2013;Gerst et al, 2013). For example, Haurie and Viguier (2003) proposed a computable stochastic equilibrium model to represent possible competition between Russia and China on the international market of carbon emission permits.…”

“…Alonso et al (2012) integrated renewable energy sources in smart grids by means of evolutionary optimization algorithms. Considine and Larson (2012) developed an economic model to analyze the underlying economic forces, inducing adjustments in the mix of technologies used in the electric power industry for regulating emissions of GHG emissions, during the first phase of the European Unions Emissions Trading System. Chapple et al (2013) studied the capital market effects of the proposed emission trading scheme by using of a modified version of the Ohlson valuation model.…”