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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) and Climate Economics Chair.)

  • Pierre-André Jouvet

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

Abstract

This paper investigates the link between wholesale electricity prices in Europe and the CO2 cost, i.e. the price of European Union Allowances (EUAs), over the two first phases of the European Union Emissions Trading Scheme (EU ETS). We set up a theoretical framework 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 alternative estimates based on the EU ETS compliance periods.

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

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Related research

Keywords: EU ETS; CO2 cost pass-through; Electricity spot markets;

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References

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  1. 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.
  2. 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," Energy Policy, Elsevier, vol. 38(7), pages 3329-3341, July.
  3. 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.
  4. Beat Hintermann, 2009. "Allowance Price Drivers in the First Phase of the EU ETS," CEPE Working paper series 09-63, CEPE Center for Energy Policy and Economics, ETH Zurich.
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  6. 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.
  7. 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).
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  9. 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.
  10. McKitrick, Ross, 1999. "A Derivation of the Marginal Abatement Cost Curve," Journal of Environmental Economics and Management, Elsevier, vol. 37(3), pages 306-314, May.
  11. 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.
  12. 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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  14. Derek W. Bunn & Carlo Fezzi, 2007. "Interaction of European Carbon Trading and Energy Prices," Working Papers 2007.63, Fondazione Eni Enrico Mattei.
  15. 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.
  16. Fell, Harrison, 2008. "EU-ETS and Nordic Electricity: A CVAR Approach," Discussion Papers dp-08-31, Resources For the Future.
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Citations

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Cited by:
  1. O'Mahoney, Amy & Denny, Eleanor, 2011. "Electricity Prices and Generator Behaviour in Gross Pool Electricity Markets," MPRA Paper 34847, University Library of Munich, Germany.
  2. Marie Renner, 2014. "Carbon prices and CCS investment: comparative study between the European Union and China," Working Papers 1402, Chaire Economie du Climat.
  3. 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.
  4. 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.

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