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An overview of CO2 cost pass-through to electricity prices in Europe

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Author Info

  • Boris Solier

    (Paris-Dauphine University (LEDa-CGEMP), Climate Economics Chair and ADEME.)

  • Pierre-André Jouvet

    (EconomiX-CNRS, University of Paris Ouest, and Climate Economics Chair)

Abstract

This article investigates the link between wholesale electricity prices in Europe and the CO2 cost, i.e. the price of the European Union Allowances (EUA), over the two first phases of the EU ETS. We set up a theoretical and an empirical model to estimate to what extent daily fluctuations of CO2 costs may have impacted electricity prices. Regarding estimation results for the first phase of the EU ETS, about 42% of estimated pass-through rates appear to be statistically significant, while only one third of them are statistically different from zero in the second phase. We try to improve those results by proposing alternatives estimates based on the compliance periods of the EU ETS.

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File URL: http://cec-repec.site11.com/RePEc/cec/wpaper/11-07_WP_2011-08_Solier_Jouvet-Pass_through.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Chaire Economie du Climat in its series Working Papers with number 1108.

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Length: 34 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:cec:wpaper:1108

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Keywords: EU ETS; CO2 costs pass-through; Electricity prices; Spot markets;

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References

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  1. Georg Zachmann & Christian von Hirschhausen, 2007. "First Evidence of Asymmetric Cost Pass-Through of EU Emissions Allowances: Examining Wholesale Electricity Prices in Germany," Working Papers 0710, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
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  6. 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.
  7. Hintermann, Beat, 2010. "Allowance price drivers in the first phase of the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 43-56, January.
  8. Alberola, Emilie & Chevallier, Julien & Chèze, Benoît, 2008. "Price drivers and structural breaks in European carbon prices 2005-07," Economics Papers from University Paris Dauphine 123456789/4222, Paris Dauphine University.
  9. Fell, Harrison, 2008. "EU-ETS and Nordic Electricity: A CVAR Approach," Discussion Papers dp-08-31, Resources For the Future.
  10. Keppler, Jan Horst & Mansanet-Bataller, Maria, 2010. "Causalities between CO2, electricity, and other energy variables during phase I and phase II of the EU ETS," Economics Papers from University Paris Dauphine 123456789/5269, Paris Dauphine University.
  11. Declercq, Bruno & Delarue, Erik & D'haeseleer, William, 2011. "Impact of the economic recession on the European power sector's CO2 emissions," Energy Policy, Elsevier, vol. 39(3), pages 1677-1686, March.
  12. Cruciani, Michel & Keppler, Jan Horst, 2010. "Rents in the European Power Sector due to Carbon Trading," Economics Papers from University Paris Dauphine 123456789/2570, Paris Dauphine University.
  13. Juha Honkatukia & Ville Mälkönen & Adriaan Perrels, 2006. "Impacts of the European Emission Trade System on Finnish Wholesale Electricity Prices," Discussion Papers 405, Government Institute for Economic Research Finland (VATT).
  14. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics 0639, Faculty of Economics, University of Cambridge.
  15. Chernyavs'ka, Liliya & Gullì, Francesco, 2008. "Marginal CO2 cost pass-through under imperfect competition in power markets," Ecological Economics, Elsevier, vol. 68(1-2), pages 408-421, December.
  16. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
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Citations

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Cited by:
  1. Renner, Marie, 2014. "Carbon prices and CCS Investment:comparative study between the European Union and China," Economics Papers from University Paris Dauphine 123456789/12983, Paris Dauphine University.
  2. Tim Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2013. "Assessing the effectiveness of the EU Emissions Trading System," Grantham Research Institute on Climate Change and the Environment Working Papers 106, Grantham Research Institute on Climate Change and the Environment.
  3. O'Mahoney, Amy & Denny, Eleanor, 2011. "Electricity Prices and Generator Behaviour in Gross Pool Electricity Markets," MPRA Paper 34847, University Library of Munich, Germany.
  4. Marie Renner, 2014. "Carbon prices and CCS investment: comparative study between the European Union and China," Working Papers 1402, Chaire Economie du Climat.

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