Price and welfare effects of emission quota allocation
We analyze how different ways of allocating emission quotas may influence the electricity market. Using a large-scale numerical model of the Western European energy market with heterogeneous electricity producers, we show that different allocation mechanisms can have very different effects on the electricity market, even if the total emission target is fixed. This is particularly the case if output-based allocation (OBA) of quotas is used. Gas power production is then substantially higher than if quotas are grandfathered. Moreover, the welfare costs of attaining a fixed emission target are significantly higher. The numerical results for OBA are supported by a theoretical analysis, which offers some new results.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David M. Newbery, 2008.
"Climate Change Policy and Its Effect on Market Power in the Gas Market,"
Journal of the European Economic Association,
MIT Press, vol. 6(4), pages 727-751, 06.
- Newbery, D., 2006. "Climate change policy and its effect on market power in the gas market," Cambridge Working Papers in Economics 0606, Faculty of Economics, University of Cambridge.
- Bode, Sven, 2006. "Multi-period emissions trading in the electricity sector--winners and losers," Energy Policy, Elsevier, vol. 34(6), pages 680-691, April.
- Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
- Paul Simshauser & Thao Doan, 2009. "Emissions Trading, Wealth Transfers and the Wounded Bull Scenario in Power Generation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(1), pages 64-83, 03.
- Guy Meunier & Jean-Pierre Ponssard & Philippe Quirion, 2012.
"Carbon Leakage and Capacity-Based Allocations. Is the EU right?,"
CESifo Working Paper Series
4029, CESifo Group Munich.
- Meunier, Guy & Ponssard, Jean-Pierre & Quirion, Philippe, 2014. "Carbon leakage and capacity-based allocations: Is the EU right?," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 262-279.
- Guy Meunier & Jean-Pierre Ponssard & Philippe Quirion, 2014. "Carbon Leakage and Capacity-Based Allocations. Is the EU right?," CIRED Working Papers hal-00672907, HAL.
- Guy Meunier & Jean-Pierre Ponssard & Philippe Quirion, 2012. "Carbon leakage and Capacity-Based Allocations. Is the EU right?," Post-Print hal-00797234, HAL.
- Neuhoff, K. & Keats, K. & Sato, M., 2006.
"Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector,"
Cambridge Working Papers in Economics
0642, Faculty of Economics, University of Cambridge.
- Karsten Neuhoff & Kim Keats Martinez & Misato Sato, 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 73-91, January.
- Bode, Sven, 2006. "On multi-period emissions trading in the electricity sector," HWWA Discussion Papers 343, Hamburg Institute of International Economics (HWWA).
- Finn Roar Aune & Rolf Golombek & Sverre A.C. Kittelsen & Knut Einar Rosendahl, 2008. "Liberalizing European Energy Markets," Books, Edward Elgar Publishing, number 3071.
- Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
- Rosendahl, Knut Einar, 2008. "Incentives and prices in an emissions trading scheme with updating," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 69-82, July.
- Bohringer, Christoph & Lange, Andreas, 2005.
"On the design of optimal grandfathering schemes for emission allowances,"
European Economic Review,
Elsevier, vol. 49(8), pages 2041-2055, November.
- Böhringer, Christoph & Lange, Andreas, 2003. "On the Design of Optimal Grandfathering Schemes for Emission Allowances," ZEW Discussion Papers 03-08, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Burtraw, Dallas & Palmer, Karen & Kahn, Daniel, 2005.
"CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors,"
dp-05-55, Resources For the Future.
- Burtraw, Dallas & Kahn, Danny & Palmer, Karen, 2006. "CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors," The Electricity Journal, Elsevier, vol. 19(2), pages 79-90, March.
- Regina Betz & Karoline Rogge & Joachim Schleich, 2006. "EU emissions trading: an early analysis of national allocation plans for 2008-2012," Climate Policy, Taylor & Francis Journals, vol. 6(4), pages 361-394, July.
- Christoph Böhringer & Carolyn Fischer & Knut Einar Rosendahl, 2010.
"The Global Effects of Subglobal Climate Policies,"
634, Statistics Norway, Research Department.
- Sterner, Thomas & Muller, Adrian, 2006.
"Output and Abatement Effects of Allocation Readjustment in Permit Trade,"
dp-06-49, Resources For the Future.
- Muller, Adrian & Sterner, Thomas, 2009. "Output and Abatement Effects of Allocation Readjustment in Permit Trade," Working Papers in Economics 413, University of Gothenburg, Department of Economics.
- Yihsu Chen & Jos Sijm & Benjamin Hobbs & Wietze Lise, 2008. "Implications of CO 2 emissions trading for short-run electricity market outcomes in northwest Europe," Journal of Regulatory Economics, Springer, vol. 34(3), pages 251-281, December.
- Ibrahim Ahamada & Djamel Kirat, 2011. "The impact of the European Union Emission Trading Scheme on electricity generation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00629900, HAL.
- Fell, Harrison, 2008. "EU-ETS and Nordic Electricity: A CVAR Approach," Discussion Papers dp-08-31, Resources For the Future.
- 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.
- Jos Sijm & Karsten Neuhoff & Yihsu Chen, 2006.
"CO 2 cost pass-through and windfall profits in the power sector,"
Taylor & Francis Journals, vol. 6(1), pages 49-72, January.
- 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.
- Knut Rosendahl & Halvor Storrøsten, 2011. "Emissions Trading with Updated Allocation: Effects on Entry/Exit and Distribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 243-261, June.
- Kirat, Djamel & Ahamada, Ibrahim, 2011. "The impact of the European Union emission trading scheme on the electricity-generation sector," Energy Economics, Elsevier, vol. 33(5), pages 995-1003, September.
- Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
- Derek W. Bunn & Carlo Fezzi, 2007. "Interaction of European Carbon Trading and Energy Prices," Working Papers 2007.63, Fondazione Eni Enrico Mattei.
- Christoph Böhringer & Andreas Lange, 2005. "Economic Implications of Alternative Allocation Schemes for Emission Allowances," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 563-581, 09.
- Guy Meunier & Jean-Pierre Ponssard, 2012. "A Sectoral Approach Balancing Global Efficiency and Equity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(4), pages 533-552, December.
- Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2011. "Output-based allocation and investment in clean technologies," Discussion Papers 644, Statistics Norway, Research Department.
- Gersbach, Hans & Requate, Till, 2004. "Emission taxes and optimal refunding schemes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 713-725, March.
- Wietze Lise & Jos Sijm & Benjamin Hobbs, 2010. "The Impact of the EU ETS on Prices, Profits and Emissions in the Power Sector: Simulation Results with the COMPETES EU20 Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(1), pages 23-44, September.
- Dallas Burtraw & Karen Palmer, 2008. "Compensation rules for climate policy in the electricity sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(4), pages 819-847.
- A. Denny Ellerman, 2008. "New Entrant and Closure Provisions: How do they Distort?," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 63-76.
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:568-580. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.