Carbon Tax or Carbon Permits: The Impact on Generators' Risks
AbstractVolatile fuel prices affect both the cost and price of electricity in a liberalised market. Generators with the price-setting technology will face less risk to their profit margins than those with a technology that is not price-setting, even if its costs are not volatile. Emissions permit prices may respond to relative fuel prices, further increasing volatility. This paper simulates the impact of this on generators' profits, comparing an emissions trading scheme and a carbon tax against predictions for the UK in 2020. The carbon tax reduces the volatility faced by nuclear generators, but raises that faced by fossil fuel stations. Optimal portfolios would contain a higher proportion of nuclear plant if a carbon tax was adopted
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Bibliographic InfoPaper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 07-02.
Length: 18 pages
Date of creation: Mar 2007
Date of revision:
Electricity; emissions trading; emissions taxes; fuel price risk;
Other versions of this item:
- Richard Green, 2008. "Carbon Tax or Carbon Permits: The Impact on Generators Risks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 67-90.
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-04 (All new papers)
- NEP-ENE-2007-05-04 (Energy Economics)
- NEP-ENV-2007-05-04 (Environmental Economics)
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