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Evaluating the impact of average cost based contracts on the industrial sector in the European emission trading scheme


  • OGGIONI, Giorgia

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • SMEERS, Yves

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))


The inception of the Emission Trading System in Europe (EU-ETS) has made power price more expensive. This affects the competitiveness of electricity intensive industrial consumers and may force them to leave Europe. Taking up of a proposal of the industrial sector, we explore the possible application of special contracts, based on the average cost pricing system, which would mitigate the impact of CO2 cost on their electricity price. The model supposes fixed generation capacities. A companion paper treats the case with capacity expansion. We first consider a reference model representing a perfectly competitive market where all consumers (households and industries) are price-takers and buy electricity at the short-run marginal cost. We then change the market design assuming that large industrial consumers pay power either at a single or at a nodal average cost price. The analysis of these problems is conducted with simulation models applied to the Northwestern European market. The equilibrium models developed are implemented in the GAMS environment.

Suggested Citation

  • OGGIONI, Giorgia & SMEERS, Yves, 2008. "Evaluating the impact of average cost based contracts on the industrial sector in the European emission trading scheme," CORE Discussion Papers 2008001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2008001

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    average cost pricing; complementarity conditions; EU-ETS; Northwestern Europe market.;

    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • B24 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Socialist; Marxist; Scraffian

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