Short Term Electric Production Technology Switching Under Carbon Cap and Trade
This study examines fuel switching in electricity production following the introduction of the European Union’s Emissions Trading System (EU ETS) for greenhouse gas emissions. A short-run restricted cost equation is estimated with carbon permits, high-carbon fuels, and low carbon fuels as variable inputs. Shadow values and substitution elasticities for carbon-free energy resources from nuclear, hydroelectric and renewable sources are imputed from the cost equation. The empirical analysis examines 12 European countries using monthly data on fuel use, prices, and electricity generation during the first phase of the European Emissions Trading System. Despite low emission permit prices, this study finds statistically significant substitution between fossil fuels and carbon free sources of energy for electric power production. Significant substitution between fossil fuels and nuclear energy also was found. Still, while 18 of the 20 substitution elasticities are statistically significant, they are all less than unity, consistent with limited substitution. Overall, these results suggest that prices for carbon emission permits relative to prices for carbon and carbon free sources of energy do matter but that electric power producers have limited operational flexibility in the short-run to satisfy greenhouse gas emission limits.
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.:
- Considine, Timothy J. & Larson, Donald F., 2006.
"The environment as a factor of production,"
Journal of Environmental Economics and Management,
Elsevier, vol. 52(3), pages 645-662, November.
- Considine, Timothy J. & Larson, Donald F., 2004. "The environment as a factor of production," Policy Research Working Paper Series 3271, The World Bank.
- Atkinson, Scott E & Halvorsen, Robert, 1976. "Interfuel Substitution in Steam Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 959-978, October.
- Butler, Lucy & Neuhoff, Karsten, 2008. "Comparison of feed-in tariff, quota and auction mechanisms to support wind power development," Renewable Energy, Elsevier, vol. 33(8), pages 1854-1867.
- Butler, L. & Neuhoff, K., 2005. "Comparison of Feed in Tariff, Quota and Auction Mechanisms to Support Wind Power Development," Cambridge Working Papers in Economics 0503, Faculty of Economics, University of Cambridge.
- Hoffmann, Volker H., 2007. "EU ETS and Investment Decisions:: The Case of the German Electricity Industry," European Management Journal, Elsevier, vol. 25(6), pages 464-474, December.
- Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "A Review of Carbon Market Policies and Research," International Review of Environmental and Resource Economics, now publishers, vol. 2(3), pages 177-236, November.
- Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-432, June.
- Nicolosi, Marco, 2010. "Wind power integration and power system flexibility-An empirical analysis of extreme events in Germany under the new negative price regime," Energy Policy, Elsevier, vol. 38(11), pages 7257-7268, November.
- Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-287, May.
- Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-676, August.
- Hobbs, Benjamin F., 1995. "Optimization methods for electric utility resource planning," European Journal of Operational Research, Elsevier, vol. 83(1), pages 1-20, May.
- Halvorsen, Robert & Smith, Tim R, 1986. "Substitution Possibilities for Unpriced Natural Resources: Restricted Cost Functions for the Canadian Metal Mining Industry," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 398-405, August.
- Bird, Lori & Bolinger, Mark & Gagliano, Troy & Wiser, Ryan & Brown, Matthew & Parsons, Brian, 2005. "Policies and market factors driving wind power development in the United States," Energy Policy, Elsevier, vol. 33(11), pages 1397-1407, July. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:5:y:2012:i:10:p:4165-4185:d:20904. 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: (XML Conversion Team)
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.