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Allocation of Carbon Emission Certificates in the Power Sector: How generators profit from grandfathered rights

Author

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  • Keats, K. Martinez
  • Neuhoff, K.

Abstract

To meet its Kyoto requirements, the EU will establish an internal market for carbon dioxide allowances from 2005, the EU Emissions Trading Scheme (ETS). National governments are to allocate most of these allowances for free. The analysis shows that as a result the net value of both a typical pulverised coal-fired (PC) power station and a more modern gas-fired combined cycle gas turbine (CCGT) will increase. We show that in future allocation rounds a greater proportion of allowances can and should be auctioned. The paper also analyses the interactions with the Large Combustion Plant Directive, which limits SO2 and NOx emissions

Suggested Citation

  • Keats, K. Martinez & Neuhoff, K., 2004. "Allocation of Carbon Emission Certificates in the Power Sector: How generators profit from grandfathered rights," Cambridge Working Papers in Economics 0444, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0444
    Note: CMI, IO
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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep49.pdf
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    Citations

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    Cited by:

    1. Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
    2. Knut Einar Rosendahl, 2007. "Incentives and quota prices in an emission trading scheme with updating," Discussion Papers 495, Statistics Norway, Research Department.
    3. Rosendahl, Knut Einar, 2008. "Incentives and prices in an emissions trading scheme with updating," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 69-82, July.
    4. 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.
    5. Pablo del Río & Javier Carrillo-Hermosilla & Totti Könnölä & Carlos Suárez, 2008. "Challenges and opportunities of a post-Kyoto mitigation regime: a survey of the European electricity sector," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(8), pages 863-885, October.
    6. Neuhoff, Karsten & Ehrenmann, Andreas & Butler, Lucy & Cust, Jim & Hoexter, Harriet & Keats, Kim & Kreczko, Adam & Sinden, Graham, 2008. "Space and time: Wind in an investment planning model," Energy Economics, Elsevier, vol. 30(4), pages 1990-2008, July.
    7. Yu Zhou & Jin Fan & Dingtao Zhao & Shanyong Wang, 2016. "The impact of carbon trading on regulated agents in China," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 21(3), pages 377-390, March.
    8. Cong, Rong-Gang & Wei, Yi-Ming, 2010. "Potential impact of (CET) carbon emissions trading on China’s power sector: A perspective from different allowance allocation options," Energy, Elsevier, vol. 35(9), pages 3921-3931.
    9. Knut Rosendahl & Halvor Storrøsten, 2011. "Emissions Trading with Updated Allocation: Effects on Entry/Exit and Distribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 243-261, June.
    10. Schleich, Joachim & Rogge, Karoline S. & Betz, Regina, 2008. "Incentives for energy efficiency in the EU Emissions Trading Scheme," Working Papers "Sustainability and Innovation" S2/2008, Fraunhofer Institute for Systems and Innovation Research (ISI).
    11. Rogge, Karoline S. & Hoffmann, Volker H., 2009. "The impact of the EU ETS on the sectoral innovation system for power generation technologies: findings for Germany," Working Papers "Sustainability and Innovation" S2/2009, Fraunhofer Institute for Systems and Innovation Research (ISI).
    12. Yihsu Chen & Jos Sijm & Benjamin Hobbs & Wietze Lise, 2008. "Implications of CO 2 emissions trading for short-run electricity market outcomes in northwest Europe," Journal of Regulatory Economics, Springer, vol. 34(3), pages 251-281, December.
    13. Greaker, Mads & Rosendahl, Knut Einar, 2008. "Environmental policy with upstream pollution abatement technology firms," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 246-259, November.

    More about this item

    Keywords

    electricity generation; eu emission trading; allocation; updating; grandfathering;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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