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Costs and Benefits of Political and Physical Collaboration in the European Power Market

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  • Mathias Mier
  • Kais Siala
  • Kristina Govorukha
  • Philip Mayer

Abstract

We conduct a hybrid scenario exercise to analyze decarbonization pathways and related distributional effects within the European power market. The cross-impact balance analysis reveals narratives that differ in the level of political (stringency of climate policy) and physical collaboration (expansion of interconnectors). Applying a CGE model and two power market models, we quantify the impact of the two dimensions on CO2 emissions, abatement cost, and electricity prices. The most collaborative future (176 EUR/t CO2 in 2050, unrestricted expansion) delivers highest CO2 emissions cutbacks, lowest abatement costs, and moderate prices. The least collaborative one (44 EUR/t CO2 in 2050, no expansion) leads to stagnating emissions, highest costs, and lowest prices. In all narratives, countries at the periphery of the European market experience lower prices and abate more, whereas prices are higher and abatement lower in central and Southeast Europe. Price dynamics across narratives vanish when normalizing prices with country-specific GDP per capita, opening interesting insights when evaluating distributional effects of Europe's decarbonization efforts.

Suggested Citation

  • Mathias Mier & Kais Siala & Kristina Govorukha & Philip Mayer, 2020. "Costs and Benefits of Political and Physical Collaboration in the European Power Market," ifo Working Paper Series 343, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_343
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    References listed on IDEAS

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    Cited by:

    1. Valeriya Azarova & Mathias Mier, 2021. "Investor Type Heterogeneity in Bottom-Up Optimization Models," ifo Working Paper Series 362, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Mathias Mier & Jacqueline Adelowo, 2022. "Taxation of Carbon Emissions with Social and Private Discount Rates," ifo Working Paper Series 374, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Mathias Mier & Jacqueline Adelowo & Christoph Weissbart, 2022. "Complementary Taxation of Carbon Emissions and Local Air Pollution," ifo Working Paper Series 375, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Mathias Mier & Valeriya Azarova, 2022. "Investment Cost Specifications Revisited," ifo Working Paper Series 376, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Siala, Kais & Mier, Mathias & Schmidt, Lukas & Torralba-Díaz, Laura & Sheykhha, Siamak & Savvidis, Georgios, 2022. "Which model features matter? An experimental approach to evaluate power market modeling choices," Energy, Elsevier, vol. 245(C).
    6. Mier, Mathias & Siala, Kais & Govorukha, Kristina & Mayer, Philip, 2023. "Collaboration, decarbonization, and distributional effects," Applied Energy, Elsevier, vol. 341(C).
    7. Mathias Mier, 2023. "European Electricity Prices in Times of Multiple Crises," ifo Working Paper Series 394, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Mathias Mier & Jacqueline Adelowo & Valeriya Azarova, 2022. "Endogenous Technological Change in Power Markets," ifo Working Paper Series 373, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    9. Jacqueline Adelowo & Mathias Mier & Christoph Weissbart, 2021. "Taxation of Carbon Emissions and Air Pollution in Intertemporal Optimization Frameworks with Social and Private Discount Rates," ifo Working Paper Series 360, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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    More about this item

    Keywords

    Collaboration; energy transition; decarbonization; European power market; transmission; renewable energy; energy system modeling;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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