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..
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.:
- Anna Creti & Pierre-André Jouvet & Valérie Mignon, 2011.
"Carbon Price Drivers: Phase I versus Phase II Equilibrium?,"
1106, Chaire Economie du Climat.
- Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, 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.
- 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.
- Vincent Bertrand, 2013.
"Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO2 breakeven prices,"
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.
- Vincent Bertrand, 2013. "Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO2 breakeven prices," Working Papers 1306, Chaire Economie du Climat.
- Ellerman,A. Denny & Convery,Frank J. & de Perthuis,Christian, 2010. "Pricing Carbon," Cambridge Books, Cambridge University Press, number 9780521196475.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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, May.
- 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.
- 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.
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 references are entirely missing, you can add them using this form.