IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/2014.html
   My bibliography  Save this paper

The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade

Author

Listed:
  • Guo, B.
  • Newbery, D.

Abstract

Note - The change in title and this paper replaces CWPE1951. Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB’s cross-border electricity trade with France and The Netherlands. Over 2015-2020 the unilateral CPS created €72±20 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr.

Suggested Citation

  • Guo, B. & Newbery, D., 2020. "The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade," Cambridge Working Papers in Economics 2014, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2014
    Note: bg347,dmgn
    as

    Download full text from publisher

    File URL: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2014.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Di Cosmo, Valeria & Hyland, Marie, 2013. "Carbon tax scenarios and their effects on the Irish energy sector," Energy Policy, Elsevier, vol. 59(C), pages 404-414.
    2. Würzburg, Klaas & Labandeira, Xavier & Linares, Pedro, 2013. "Renewable generation and electricity prices: Taking stock and new evidence for Germany and Austria," Energy Economics, Elsevier, vol. 40(S1), pages 159-171.
    3. Rahel Aichele & Gabriel Felbermayr, 2015. "Kyoto and Carbon Leakage: An Empirical Analysis of the Carbon Content of Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 104-115, March.
    4. Phillip Wild, William Paul Bell, and John Foster, 2015. "Impact of Carbon Prices on Wholesale Electricity Prices and Carbon Pass-Through Rates in the Australian National Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    5. Sébastien Annan-Phan and Fabien A. Roques, 2018. "Market Integration and Wind Generation: An Empirical Analysis of the Impact of Wind Generation on Cross-Border Power Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    6. Clò, Stefano & Cataldi, Alessandra & Zoppoli, Pietro, 2015. "The merit-order effect in the Italian power market: The impact of solar and wind generation on national wholesale electricity prices," Energy Policy, Elsevier, vol. 77(C), pages 79-88.
    7. Tse, Y K & Tsui, Albert K C, 2002. "A Multivariate Generalized Autoregressive Conditional Heteroscedasticity Model with Time-Varying Correlations," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 351-362, July.
    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. Leroutier, Marion, 2022. "Carbon pricing and power sector decarbonization: Evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    2. Guo, Bowei & Newbery, David, 2021. "The cost of uncoupling GB interconnectors," Energy Policy, Elsevier, vol. 158(C).
    3. Liu, Y. & Jiang, Z. & Guo, B., 2021. "Assessing China's Provincial Electricity Spot Market Pilot Operations: Lessons from the Guangdong Province," Cambridge Working Papers in Economics 2165, Faculty of Economics, University of Cambridge.
    4. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," Working Papers halshs-03265636, HAL.
    5. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," CIRED Working Papers halshs-03265636, HAL.

    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. Bell, William Paul & Wild, Phillip & Foster, John & Hewson, Michael, 2017. "Revitalising the wind power induced merit order effect to reduce wholesale and retail electricity prices in Australia," Energy Economics, Elsevier, vol. 67(C), pages 224-241.
    2. Csereklyei, Zsuzsanna & Qu, Songze & Ancev, Tihomir, 2019. "The effect of wind and solar power generation on wholesale electricity prices in Australia," Energy Policy, Elsevier, vol. 131(C), pages 358-369.
    3. Samarth Kumar & David Schönheit & Matthew Schmidt & Dominik Möst, 2019. "Parsing the Effects of Wind and Solar Generation on the German Electricity Trade Surplus," Energies, MDPI, vol. 12(18), pages 1-17, September.
    4. Di Cosmo, Valeria & Malaguzzi Valeri, Laura, 2018. "Wind, storage, interconnection and the cost of electricity generation," Energy Economics, Elsevier, vol. 69(C), pages 1-18.
    5. Percebois, Jacques & Pommeret, Stanislas, 2019. "Storage cost induced by a large substitution of nuclear by intermittent renewable energies: The French case," Energy Policy, Elsevier, vol. 135(C).
    6. Vijay, Avinash & Fouquet, Nicolas & Staffell, Iain & Hawkes, Adam, 2017. "The value of electricity and reserve services in low carbon electricity systems," Applied Energy, Elsevier, vol. 201(C), pages 111-123.
    7. Alexander Ryota Keeley, Kenichi Matsumoto, Kenta Tanaka, Yogi Sugiawan, and Shunsuke Managi, 2020. "The Impact of Renewable Energy Generation on the Spot Market Price in Germany: Ex-Post Analysis using Boosting Method," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    8. Pradhan, Ashis Kumar & Rout, Sandhyarani & Khan, Imran Ahmed, 2021. "Does market concentration affect wholesale electricity prices? An analysis of the Indian electricity sector in the COVID-19 pandemic context," Utilities Policy, Elsevier, vol. 73(C).
    9. Poursalimi Jaghargh, Mohammad Javad & Mashhadi, Habib Rajabi, 2021. "An analytical approach to estimate structural and behavioral impact of renewable energy power plants on LMP," Renewable Energy, Elsevier, vol. 163(C), pages 1012-1022.
    10. Bean, Patrick & Blazquez, Jorge & Nezamuddin, Nora, 2017. "Assessing the cost of renewable energy policy options – A Spanish wind case study," Renewable Energy, Elsevier, vol. 103(C), pages 180-186.
    11. Clò, Stefano & D'Adamo, Gaetano, 2015. "The dark side of the sun: How solar power production affects the market value of solar and gas sources," Energy Economics, Elsevier, vol. 49(C), pages 523-530.
    12. Foster, Edward & Contestabile, Marcello & Blazquez, Jorge & Manzano, Baltasar & Workman, Mark & Shah, Nilay, 2017. "The unstudied barriers to widespread renewable energy deployment: Fossil fuel price responses," Energy Policy, Elsevier, vol. 103(C), pages 258-264.
    13. Csermely, Ágnes, 2022. "A naperőművek nagykereskedelmi piaci árakra és a hagyományos technológiákra gyakorolt hatása Magyarországon [The merit order effect of photovoltaic electricity generation in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 547-571.
    14. Luňáčková, Petra & Průša, Jan & Janda, Karel, 2017. "The merit order effect of Czech photovoltaic plants," Energy Policy, Elsevier, vol. 106(C), pages 138-147.
    15. Tsai, Chen-Hao & Eryilmaz, Derya, 2018. "Effect of wind generation on ERCOT nodal prices," Energy Economics, Elsevier, vol. 76(C), pages 21-33.
    16. Paige Weber & Matt Woerman, 2022. "Intermittency or Uncertainty? Impacts of Renewable Energy in Electricity Markets," CESifo Working Paper Series 9902, CESifo.
    17. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2021. "The Merit-Order Effect on the Swedish bidding zone with the highest electricity flow in the Elspot market," Energy Economics, Elsevier, vol. 102(C).
    18. Odeh, Rodrigo Pérez & Watts, David, 2019. "Impacts of wind and solar spatial diversification on its market value: A case study of the Chilean electricity market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 111(C), pages 442-461.
    19. Maniatis, Georgios I. & Milonas, Nikolaos T., 2022. "The impact of wind and solar power generation on the level and volatility of wholesale electricity prices in Greece," Energy Policy, Elsevier, vol. 170(C).
    20. Shao, Jing & Chen, Huanhuan & Li, Jinke & Liu, Guy, 2022. "An evaluation of the consumer-funded renewable obligation scheme in the UK for wind power generation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 153(C).

    More about this item

    Keywords

    Carbon tax; Bilateral trading; Carbon leakage; Electricity market;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cam:camdae:2014. 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: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    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.