Carbon and energy prices under uncertainty: A theoretical analysis of fuel switching with non-equally efficient power plants
European power producers have a major influence on the EU ETS, given that both their CO2 emissions and their EUA (European Union Allowance) allocations account for more than half of the total volumes of the scheme. Fuel switching is often considered as the main short-term abatement measure under the EU ETS. It consists in substituting combined cycle gas turbines (CCGTs) for hard-coal plants in power generation. Thereby coal plants run for shorter periods, and CO2 emissions are reduced. This paper provides a theoretical analysis of fuel switching, in a context where power plants involved are not equally efficient. We begin with some analyses which enable us to observe how differences in the efficiency of power plants impact the cost of fuel switching, and how this is related to the level of switching effort. Based on these preliminary analyses, we build the first partial equilibrium model taking into account the effect of differences in the efficiency of power plants involved in fuel switching. We also investigate the effect of the timing of fuel switching abatements, within the temporally defined environment of our dynamic partial equilibrium model. Results show that the gas price, uncontrolled CO2 emissions and the timing of abatement (through the time of occurrence of random shocks on uncontrolled emissions) act together on the carbon price, and on its relationship with fuel prices..
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.:
- Vincent Bertrand, 2013.
"Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO2 breakeven prices,"
1306, Chaire Economie du Climat.
- Vincent Bertrand, 2013. "Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO2 breakeven prices," Economics Bulletin, AccessEcon, vol. 33(2), pages 1535-1546.
- Bertrand, Vincent, 2013. "Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO 2 breakeven prices," Economics Papers from University Paris Dauphine 123456789/12952, Paris Dauphine University.
- Ellerman Denny & Delarue Erik & Hannes Weigt, 2012. "CO2 Abatement from RES Injections in the German Electricity Sector: Does a CO2 Price Help?," Working papers 2012/14, Faculty of Business and Economics - University of Basel.
- Vincent Bertrand, 2013. "Modeling of Emission Allowance Markets: A Literature Review," Working Papers 1304, Chaire Economie du Climat.
- Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
- Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
- Vincent Bertrand, 2012.
"Understanding fuel switching under the EU ETS,"
International Journal of Global Energy Issues,
Inderscience Enterprises Ltd, vol. 35(6), pages 494-517.
- Trotignon, Raphaël, 2012. "In search of the carbon price: The european CO2 emission trading scheme : from ex ante and ex post analysis to the protection in 2020," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/11212 edited by De Perthuis, Christian, July.
- Delarue, Erik & Lamberts, Hans & D’haeseleer, William, 2007. "Simulating greenhouse gas (GHG) allowance cost and GHG emission reduction in Western Europe," Energy, Elsevier, vol. 32(8), pages 1299-1309.
- Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
- Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012.
"Carbon price drivers: Phase I versus Phase II equilibrium?,"
Elsevier, vol. 34(1), pages 327-334.
- Anna Creti & Pierre-André Jouvet & Valérie Mignon, 2011. "Carbon Price Drivers: Phase I Versus Phase II Equilibrium?," Working Papers 2011-09, CEPII research center.
- Anna Creti & Pierre-André Jouvet & Valérie Mignon, 2011. "Carbon Price Drivers: Phase I versus Phase II Equilibrium?," Working Papers 1106, Chaire Economie du Climat.
- repec:cup:cbooks:9780521196475 is not listed on IDEAS
- Seifert, Jan & Uhrig-Homburg, Marliese & Wagner, Michael, 2008. "Dynamic behavior of CO2 spot prices," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 180-194, September.
- Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
- Beat Hintermann, 2009.
"Allowance Price Drivers in the First Phase of the EU ETS,"
CEPE Working paper series
09-63, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Hintermann, Beat, 2010. "Allowance price drivers in the first phase of the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 43-56, January.
- Schennach, Susanne M., 2000. "The Economics of Pollution Permit Banking in the Context of Title IV of the 1990 Clean Air Act Amendments," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 189-210, November.
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
When requesting a correction, please mention this item's handle: RePEc:cec:wpaper:1309. 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: (Climate Economics Chair)
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.