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Price and welfare effects of emission quota allocation

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Author Info

  • Golombek, Rolf
  • Kittelsen, Sverre A.C.
  • Rosendahl, Knut Einar

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 with heterogeneous electricity producers, 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. Gas power production is then substantially higher than if quotas are grandfathered. Moreover, the welfare costs of attaining a fixed emission target are significantly higher. The numerical results for OBA are supported by a theoretical analysis, which offers some new results.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 36 (2013)
Issue (Month): C ()
Pages: 568-580

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Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:568-580

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Quota market; Electricity market; Allocation of quotas;

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References

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  1. Harrison Fell, 2010. "EU-ETS and Nordic Electricity: A CVAR Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
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  14. Fell, Harrison, 2008. "EU-ETS and Nordic Electricity: A CVAR Approach," Discussion Papers dp-08-31, Resources For the Future.
  15. Paul Simshauser & Thao Doan, 2009. "Emissions Trading, Wealth Transfers and the Wounded Bull Scenario in Power Generation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(1), pages 64-83, 03.
  16. Rosendahl, Knut Einar, 2008. "Incentives and prices in an emissions trading scheme with updating," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 69-82, July.
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Cited by:
  1. Guy Meunier & Jean-Pierre Ponssard & Philippe Quirion, 2012. "Carbon Leakage and Capacity-Based Allocations. Is the EU right?," CESifo Working Paper Series 4029, CESifo Group Munich.
  2. repec:hal:ciredw:hal-00672907 is not listed on IDEAS

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