Evaluating the impact of average cost based contracts on the industrial sector in the European emission trading scheme
The inception of the emission trading scheme in Europe has contributed to power price increases. Energy intensive industries have reacted by arguing that this may affect their competitiveness and will induce them to leave Europe. Taking up a proposal of these industrial sectors, we explore the possible application of special contracts, where electricity is sold at average generation cost to mitigate the impact of CO 2 cost on power prices. The model supposes fixed generation capacities. We first consider a reference model representing a perfectly competitive market where all consumers (industries and the rest of the market) are price-takers and buy electricity at short-run marginal cost. We then change the market design by assuming that energy intensive industries pay power either at a regional or at a zonal average cost price. The analysis is conducted with simulation models applied to the Central Western European power market. The models are implemented in GAMS/PATH. Copyright Springer-Verlag 2009
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Volume (Year): 17 (2009)
Issue (Month): 2 (June)
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- OGGIONI, Giorgia & SMEERS, Yves, 2008. "Average power contracts can mitigate carbon leakage," CORE Discussion Papers 2008062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- 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.
- Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
- Oggioni, Giorgia & Smeers, Yves, 2008. "Equilibrium models for the carbon leakage problem," CORE Discussion Papers 2008076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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