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How to deal with the risks of phasing out coal in Germany

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  • Osorio, Sebastian
  • Pietzcker, Robert C.
  • Pahle, Michael
  • Edenhofer, Ottmar

Abstract

Germany has an ambitious climate target for 2030 that cannot be achieved without reducing the high share of coal in power generation. In the face of this, the government has recently decided to directly phase out coal capacity. Yet implementing such a policy comes with two important risks: (1) the decommissioning path might actually be insufficient to reach the 2030 climate target; and (2) the waterbed effect that arises from any additional national policy within the EU Emissions Trading Scheme (EU ETS) cap. In this paper, we quantify these risks using the numerical electricity market model LIMES-EU, and consider options for dealing with them. Our results show that the coal capacity phase out risks missing the 2030 target slightly, but a carbon price floor of at least 35 €/tCO2 would eliminate this risk. Further, we find a substantial waterbed effect, which could be partly alleviated through a carbon price floor coalition of countries, and even fully by cancelling 1.1 GtCO2 of certificates. Yet given the difficulties and challenges that come with either option, members implementing a carbon price floor policy should advocate extending it to the full EU ETS level.

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  • Osorio, Sebastian & Pietzcker, Robert C. & Pahle, Michael & Edenhofer, Ottmar, 2020. "How to deal with the risks of phasing out coal in Germany," Energy Economics, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:eneeco:v:87:y:2020:i:c:s0140988320300694
    DOI: 10.1016/j.eneco.2020.104730
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    2. Jafari, Yaghoob & Engemann, Helena & Heckelei, Thomas & Hainsch, Karlo, 2023. "National and Regional Economic Impacts of changes in Germany's electricity mix: A dynamic analysis through 2050," Utilities Policy, Elsevier, vol. 82(C).
    3. Martin Kittel & Wolf-Peter Schill, 2021. "Renewable Energy Targets and Unintended Storage Cycling: Implications for Energy Modeling," Papers 2107.13380, arXiv.org, revised Sep 2021.
    4. Grischa Perino & Robert A. Ritz & Arthur van Benthem, 2019. "Overlapping Climate Policies," NBER Working Papers 25643, National Bureau of Economic Research, Inc.
    5. Martínez-Gordón, R. & Morales-España, G. & Sijm, J. & Faaij, A.P.C., 2021. "A review of the role of spatial resolution in energy systems modelling: Lessons learned and applicability to the North Sea region," Renewable and Sustainable Energy Reviews, Elsevier, vol. 141(C).
    6. Ruhnau, O. & Bucksteeg, M. & Ritter, D. & Schmitz, R. & Böttger, D. & Koch, M. & Pöstges, A. & Wiedmann, M. & Hirth, L., 2022. "Why electricity market models yield different results: Carbon pricing in a model-comparison experiment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 153(C).
    7. Kristina Govorukha & Philip Mayer & Dirk Rübbelke, 2021. "Fragmented Landscape of European Policies in the Energy Sector: First-Mover Advantages," CESifo Working Paper Series 9093, CESifo.
    8. Pietzcker, Robert C. & Osorio, Sebastian & Rodrigues, Renato, 2021. "Tightening EU ETS targets in line with the European Green Deal: Impacts on the decarbonization of the EU power sector," Applied Energy, Elsevier, vol. 293(C).
    9. Grimm, Veronika & Sölch, Christian & Zöttl, Gregor, 2022. "Emissions reduction in a second-best world: On the long-term effects of overlapping regulations," Energy Economics, Elsevier, vol. 109(C).
    10. Halbrügge, Stephanie & Buhl, Hans Ulrich & Fridgen, Gilbert & Schott, Paul & Weibelzahl, Martin & Weissflog, Jan, 2022. "How Germany achieved a record share of renewables during the COVID-19 pandemic while relying on the European interconnected power network," Energy, Elsevier, vol. 246(C).

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    More about this item

    Keywords

    EU ETS; Carbon price floor; Carbon price; Coal phase-out; Waterbed effect;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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