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Understanding fuel switching under the EU ETS

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  • Vincent Bertrand

Abstract

Since the creation of the European Union Emission Trading Scheme (EU ETS), European power producers have monitored carbon emissions resulting from the composition of their production. Fuel switching is the main short-term abatement measure under the EU ETS. It consists in substituting combined cycle gas turbines (CCGTs) for hard-coal plants in off-peak power generation. Thereby coal plants run for shorter periods, allowing power producers to reduce their CO2 emissions. The aim of this paper is two-fold. First, we summarise the main characteristics of fuel switching under the EU ETS. Second, we show how differences in the energy/environmental efficiency of power plants impact the marginal cost of fuel switching. We demonstrate that the level of switching effort influences the dependence of the marginal cost of switching on fuel prices. The marginal cost of switching is shown to be increasingly dependent on the gas price as the switching effort increases, whereas the net effect is undetermined for the coal price. All the conclusions are summarised in several illustrative examples.

Suggested Citation

  • Vincent Bertrand, 2012. "Understanding fuel switching under the EU ETS," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(6), pages 494-517.
    • Handle: RePEc:ids:ijgeni:v:35:y:2012:i:6:p:494-517
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    Cited by:

    1. repec:dau:papers:123456789/12952 is not listed on IDEAS
    2. Vincent Bertrand, 2013. "Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO2 breakeven prices," Economics Bulletin, AccessEcon, vol. 33(2), pages 1535-1546.
    3. Benjamin Dequiedt & Vera Eory & Juliette Maire & Cairstiona F.E. Topp & Robert Rees & Peter Zander & Moritz Reckling & Nicole Schlaefke, 2015. "Mitigation costs through alternative crop rotations in agriculture: an assessment for 5 European regions," Working Papers 1502, Chaire Economie du climat.
    4. Vincent Bertrand, 2013. "Carbon and energy prices under uncertainty: A theoretical analysis of fuel switching with non-equally efficient power plants," Working Papers 1309, Chaire Economie du climat.
    5. Bertrand, Vincent & Dequiedt, Benjamin & Le Cadre, Elodie, 2014. "Biomass for electricity in the EU-27: Potential demand, CO2 abatements and breakeven prices for co-firing," Energy Policy, Elsevier, vol. 73(C), pages 631-644.
    6. Vincent Bertrand, 2013. "Modeling of Emission Allowance Markets: A Literature Review," Working Papers 1304, Chaire Economie du climat.
    7. Bertrand, Vincent, 2014. "Carbon and energy prices under uncertainty: A theoretical analysis of fuel switching with heterogenous power plants," Resource and Energy Economics, Elsevier, vol. 38(C), pages 198-220.
    8. Vincent Bertrand & Elodie Le Cadre, 2015. "Simulating the use of biomass in electricity with the green electricity simulate model: An application to the French power generation," Working Papers 1503, Chaire Economie du climat.

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