IDEAS home Printed from https://ideas.repec.org/p/zbw/hwwadp/343.html
   My bibliography  Save this paper

On multi-period emissions trading in the electricity sector

Author

Listed:
  • Bode, Sven

Abstract

Emissions trading schemes on entity level are becoming more and more important in the context of controlling greenhouse gases. The directive on a Europe-wide trading scheme is a prime example. Prior to the start of such a scheme, a number of design features have to be agreed upon. Regarding the allocation of allowances, a distribution that is (almost) free of charge has been the method of choice. An aspect that has interestingly attracted little attention thus far is the question of how to allocate emission rights over time, i.e. in single, subsequent periods that exist in real trading schemes. In this paper, different allocation options are applied to the electricity sector. A power market that mirrors reality with five different types of power plants (hydro, nuclear, lignite, coal and gas) is simulated over two periods. On the demand side, three different load curves are assumed (winter, summer, transition). For each demand curve different elasticities are analysed. Supply and demand are matched on an hourly basis. The allocation is either based on absolute emissions or on a generation benchmark. The base period / generation metric is either constant or updated over time. Thus, four different allocation options exist. It turns out that the electricity sector as a whole gains from the introduction of the instrument. Its aggregated gross margin is considerably higher with an allocation based on a constant period / generation metric. It is thus the preferred allocation option. This result contradicts other recent studies that assumed completely inelastic demand. Single plant operators may, however, win or lose in terms of the net financial impact. On the installation level, preferences regarding the different allocation scheme are a function of the fuel used.

Suggested Citation

  • Bode, Sven, 2006. "On multi-period emissions trading in the electricity sector," HWWA Discussion Papers 343, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:343
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/19371/1/343.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2005. "The Ten-Year Rule: Allocation of Emission Allowances in the EU Emission Trading System," Discussion Papers 10637, Resources for the Future.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
    2. Veith, Stefan & Werner, Jörg R. & Zimmermann, Jochen, 2009. "Capital market response to emission rights returns: Evidence from the European power sector," Energy Economics, Elsevier, vol. 31(4), pages 605-613, July.
    3. Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013. "Price and welfare effects of emission quota allocation," Energy Economics, Elsevier, vol. 36(C), pages 568-580.
    4. da Silva, Patricia Pereira & Moreno, Blanca & Figueiredo, Nuno Carvalho, 2016. "Firm-specific impacts of CO2 prices on the stock market value of the Spanish power industry," Energy Policy, Elsevier, vol. 94(C), pages 492-501.
    5. Anke, Carl-Philipp & Hobbie, Hannes & Schreiber, Steffi & Möst, Dominik, 2020. "Coal phase-outs and carbon prices: Interactions between EU emission trading and national carbon mitigation policies," Energy Policy, Elsevier, vol. 144(C).
    6. Falbo, Paolo & Felletti, Daniele & Stefani, Silvana, 2013. "Free EUAs and fuel switching," Energy Economics, Elsevier, vol. 35(C), pages 14-21.
    7. Longfei He & Chenglin Hu & Daozhi Zhao & Haili Lu & Xiaoxi Fu & Yiyu Li, 2016. "Carbon emission mitigation through regulatory policies and operations adaptation in supply chains: theoretic developments and extensions," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 179-207, November.
    8. Wang, Kun & Fu, Xiaowen & Luo, Meifeng, 2015. "Modeling the impacts of alternative emission trading schemes on international shipping," Transportation Research Part A: Policy and Practice, Elsevier, vol. 77(C), pages 35-49.
    9. Chicco, Gianfranco & Mancarella, Pierluigi, 2009. "Distributed multi-generation: A comprehensive view," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(3), pages 535-551, April.
    10. Shan Yu & Qiang Hou & Jiayi Sun, 2020. "Investment Game Model Analysis of Emission-Reduction Technology Based on Cost Sharing and Coordination under Cost Subsidy Policy," Sustainability, MDPI, vol. 12(6), pages 1-19, March.
    11. Lopez, Neil Stephen A. & Foo, Dominic C.Y. & Tan, Raymond R., 2021. "Optimizing regional electricity trading with Carbon Emissions Pinch Analysis," Energy, Elsevier, vol. 237(C).
    12. Dietrich, Lars & Bode, Sven, 2005. "CO2-Abscheidung und Ablagerung (CAA): Ordnungsrechtliche Aspekte und okonomische Implikationen im Rahmen des EU - Emissionshandels," Discussion Paper Series 26203, Hamburg Institute of International Economics.
    13. Dietrich, Lars & Bode, Sven, 2005. "CO2-Abscheidung und Ablagerung (CAA): Ordnungsrechtliche Aspekte und ökonomische Implikationen im Rahmen des EU-Emissionshandels," HWWA Discussion Papers 327, Hamburg Institute of International Economics (HWWA).
    14. Jaehn, Florian & Letmathe, Peter, 2010. "The emissions trading paradox," European Journal of Operational Research, Elsevier, vol. 202(1), pages 248-254, April.
    15. Li, Changsheng & Qi, Yaping & Liu, Shaohui & Wang, Xu, 2022. "Do carbon ETS pilots improve cities' green total factor productivity? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 108(C).
    16. Zhang, Xiaodong & Duncan, Ian J. & Huang, Gordon & Li, Gongchen, 2014. "Identification of management strategies for CO2 capture and sequestration under uncertainty through inexact modeling," Applied Energy, Elsevier, vol. 113(C), pages 310-317.
    17. Mo, Jian-Lei & Zhu, Lei & Fan, Ying, 2012. "The impact of the EU ETS on the corporate value of European electricity corporations," Energy, Elsevier, vol. 45(1), pages 3-11.
    18. Lund, Peter, 2007. "Impacts of EU carbon emission trade directive on energy-intensive industries -- Indicative micro-economic analyses," Ecological Economics, Elsevier, vol. 63(4), pages 799-806, September.
    19. S. Du & F. Ma & Z. Fu & L. Zhu & J. Zhang, 2015. "Game-theoretic analysis for an emission-dependent supply chain in a ‘cap-and-trade’ system," Annals of Operations Research, Springer, vol. 228(1), pages 135-149, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sandoff, Anders & Schaad, Gabriela, 2009. "Does EU ETS lead to emission reductions through trade? The case of the Swedish emissions trading sector participants," Energy Policy, Elsevier, vol. 37(10), pages 3967-3977, October.
    2. Dietrich, Lars & Bode, Sven, 2005. "CO2-Abscheidung und Ablagerung (CAA): Ordnungsrechtliche Aspekte und okonomische Implikationen im Rahmen des EU - Emissionshandels," Discussion Paper Series 26203, Hamburg Institute of International Economics.
    3. Dietrich, Lars & Bode, Sven, 2005. "CO2-Abscheidung und Ablagerung (CAA): Ordnungsrechtliche Aspekte und ökonomische Implikationen im Rahmen des EU-Emissionshandels," HWWA Discussion Papers 327, Hamburg Institute of International Economics (HWWA).
    4. Karsten Neuhoff & Kim Keats Martinez & Misato Sato, 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 73-91, January.
    5. Andrew Keeler, 2007. "State greenhouse gas reduction policies: a move in the right direction?," Policy Sciences, Springer;Society of Policy Sciences, vol. 40(4), pages 353-365, December.
    6. Dissemin, uploaded via & Demailly, Damien & Quirion, Philippe, 2018. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," OSF Preprints w9cq5, Center for Open Science.
    7. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, vol. 30(4), pages 2009-2027, July.
    8. Demailly, Damien & Quirion, Philippe, 2008. "Changing the Allocation Rules in the EU ETS: Impact on Competitiveness and Economic Efficiency," Climate Change Modelling and Policy Working Papers 46623, Fondazione Eni Enrico Mattei (FEEM).

    More about this item

    Keywords

    allocation of GHG allowances; electricity sector; multi-period emissions trading;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:hwwadp:343. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/hwwaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.