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Estimating the target-consistent carbon price for electricity

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  • Newbery, D.

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 paper develops a simple linear model to illustrate the relation between the shadow carbon price (SPC) and VRE penetration and calibrates it 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 can help judge the appropriateness of the original target level of VRE penetration.

Suggested Citation

  • Newbery, D., 2023. "Estimating the target-consistent carbon price for electricity," Cambridge Working Papers in Economics 2361, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2361
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
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    More about this item

    Keywords

    social cost of carbon; variable renewable electricity; marginal curtailment;
    All these keywords.

    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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