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Quantifying the net cost of a carbon price floor in Germany

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  • Egli, Philipp
  • Lecuyer, Oskar

Abstract

The German energy and climate policy mix is failing to decarbonize electricity production until now, with only 6% overall CO2 emissions reductions since 2005. Using empirical methods and hourly market data, we estimate the aggregate supply curve of the German power market and simulate the effect of a 20€/tCO2 and 40€/tCO2 carbon price floor on the German power market and on the renewable subsidy scheme. With the 40€/tCO2 carbon price floor, median prices increase by 37€/MWh and average price peaks by 50€/MWh. At the wholesale level, the market's annual volume increases by some €18 billion to €39 billion. At the retail level, however, the net cost to consumers is moderated due to costs savings from the renewable subsidy scheme worth some €4 billion, or roughly one-fifth. The same ratio applies to a price floor at 20€/tCO2.

Suggested Citation

  • Egli, Philipp & Lecuyer, Oskar, 2017. "Quantifying the net cost of a carbon price floor in Germany," Energy Policy, Elsevier, vol. 109(C), pages 685-693.
    • Handle: RePEc:eee:enepol:v:109:y:2017:i:c:p:685-693
    DOI: 10.1016/j.enpol.2017.07.035
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    Cited by:

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    2. Hintermayer, Martin, 2020. "A Carbon Price Floor in the Reformed EU ETS: Design Matters!," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224576, Verein für Socialpolitik / German Economic Association.
    3. David M. Newbery & David M. Reiner & Robert A. Ritz, 2018. "When is a carbon price floor desirable?," Working Papers EPRG 1816, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Lin, Boqiang & Jia, Zhijie, 2019. "What will China's carbon emission trading market affect with only electricity sector involvement? A CGE based study," Energy Economics, Elsevier, vol. 78(C), pages 301-311.
    5. Hintermayer, Martin, 2020. "A Carbon Price Floor in the Reformed EU ETS: Design matters!," EWI Working Papers 2020-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    6. Hintermayer, Martin, 2020. "A carbon price floor in the reformed EU ETS: Design matters!," Energy Policy, Elsevier, vol. 147(C).
    7. Satoshi Nakano & Ayu Washizu, 2021. "Analysis of inter-regional effects caused by the wide-area operation of the power grid in Japan: an implication for carbon pricing schemes," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(3), pages 535-556, July.

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