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Estimating the Target-Consistent Carbon Price for Electricity

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  • David M. Newbery

Abstract

The target-consistent price of carbon for an electricity sector decarbonizing through massive variable renewable electricity (VRE) depends sensitively on the VRE penetration level, as the marginal curtailment of VRE rises rapidly beyond a certain level. This article develops a simple linear model to illustrate the relation between the shadow carbon price (SPC) and VRE penetration, illustrated for the island of Ireland’s 2026 target VRE penetration of 55%. The SPC rises rapidly with increased VRE investment beyond a certain point, and can be used to direct mitigating investment in storage, interconnectors, and other flexibility options. The SPC for the final efficient portfolio will be the target-consistent carbon price for electricity that is useful for comparing future decarbonization scenarios and their need for complementary investments. JEL Classification : H23, L94, Q28, Q42, Q48

Suggested Citation

  • David M. Newbery, 2025. "Estimating the Target-Consistent Carbon Price for Electricity," The Energy Journal, , vol. 46(1), pages 25-43, January.
    • Handle: RePEc:sae:enejou:v:46:y:2025:i:1:p:25-43
    DOI: 10.1177/01956574241281563
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    References listed on IDEAS

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    1. Newbery, David M. & Biggar, Darryl R., 2024. "Marginal curtailment of wind and solar PV: Transmission constraints, pricing and access regimes for efficient investment," Energy Policy, Elsevier, vol. 191(C).
    2. Newbery, D. & Biggar, D., 2024. "Marginal curtailment of wind and solar PV: transmission constraints, pricing and access regimes for efficient investment," Cambridge Working Papers in Economics 2405, Faculty of Economics, University of Cambridge.
    3. David Newbery, 2020. "Club goods and a tragedy of the commons: the Clean Energy Package and wind curtailment," Working Papers EPRG2036, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. David Newbery & Darryl Biggar, 2024. "Marginal curtailment of wind and solar PV: transmission constraints, pricing and access regimes for efficient investment," Working Papers EPRG2401, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
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    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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