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Climate change policy and its effect on market power in the gas market

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Author Info
Newbery, D.

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Abstract

The European Emissions Trading Scheme (ETS) limits CO2 emissions from covered sectors, especially electricity until December 2007, after which a new set of Allowances will be issued. The paper demonstrates that the impact of controlling the quantity rather than the price of carbon is to reduce the elasticity of demand for gas, amplifying the market power of gas suppliers, and also amplifying the impact of gas price increases on the price of electricity. A rough estimate using just British data suggests that this could increase gas market power by 50%.

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File URL: http://www.electricitypolicy.org.uk/pubs/wp/eprg0510.pdf
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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0606.

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Length: 16
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:cam:camdae:0606

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Related research
Keywords: Climate change; emissions trading; market power; gas; quotas vs taxes;

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Find related papers by JEL classification:
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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  1. Baldursson, Fridrik M. & von der Fehr, Nils-Henrik M., 2009. "Price volatility and risk exposure: on the interaction of quota and product markets," MPRA Paper 14994, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Colm McCarthy & Sue Scott, 2008. "Controlling the Cost of Controlling the Climate: The Irish Government's Climate Change Strategy," Papers WP229, Economic and Social Research Institute (ESRI). [Downloadable!]
    Other versions:
  3. Roques, F.A., 2007. "Technology Choices for New Entrants in Liberalised Markets: The Value of Operating Flexibility and Contractual Arrangements," Cambridge Working Papers in Economics 0759, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  4. Elias Asproudis & Maria José Gil-Moltó, 2009. "Technological choice under environmentalists’ participation in Emissions Trading Systems," Discussion Papers in Economics 09/9, Department of Economics, University of Leicester. [Downloadable!]
  5. Colm McCarthy & Jeremiah O'Dwyer & Richard Troy, 2006. "Measuring Fuel Diversity in Power Generation," Working Papers 200618, School Of Economics, University College Dublin. [Downloadable!]
  6. Julien Chevallier & Johanna Etner & Pierre-André Jouvet, 2008. "Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence," EconomiX Working Papers 2008-25, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
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