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Climate policy, Interconnection and Carbon Leakage: the Effect of Unilateral UK Policy on Electricity and GHG Emissions in Ireland

  • Curtis, John
  • di Cosmo, Valeria
  • Deane, Paul

This paper examines the effect on Ireland's Single Electricity Market (SEM) of the UK's unilateral policy to implement a carbon price floor for electricity generation based on fossil-fuel. We simulate electricity markets and find that, subject to efficient use of the interconnectors between the two markets, a carbon price floor will lead to carbon leakage, with associated emissions in the Republic of Ireland increasing by 8% and SEM's electricity prices increasing by 2.4%. As the carbon price floor does not affect the number of ETS allowances no change is anticipated in aggregate European emissions. We also find that the EU's proposal to postpone ETS allowance auctions will reduce Irish emissions somewhat but that the trade opportunities associated with the UK carbon price floor means that emissions reductions in Ireland will be lower than might have been otherwise. A carbon price floor will result in substantial tax revenues and had the carbon price floor been implemented in Northern Ireland the larger share of taxes remitted would be paid by Republic of Ireland customers within the SEM. A carbon price floor in the Republic of Ireland is a potential policy option that would generate revenues in excess of ?250 million but associated electricity prices increases in excess of 17% would have significant negative welfare and competitiveness effects.

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Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP458.

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Date of creation: Jun 2013
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Handle: RePEc:esr:wpaper:wp458
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  1. Tim Callan & Sean Lyons & Sue Scott & Richard S. J. Tol & Stefano Verde, 2008. "The Distributional Implications of a Carbon Tax in Ireland," Papers WP250, Economic and Social Research Institute (ESRI).
  2. Denny, E. & Tuohy, A. & Meibom, P. & Keane, A. & Flynn, D. & Mullane, A. & O'Malley, M., 2010. "The impact of increased interconnection on electricity systems with large penetrations of wind generation: A case study of Ireland and Great Britain," Energy Policy, Elsevier, vol. 38(11), pages 6946-6954, November.
  3. Laura Malaguzzi Valeri, 2008. "Welfare and Competition Effects of Electricity Interconnection between Great Britain and Ireland," Papers WP232, Economic and Social Research Institute (ESRI).
  4. Kathy Baylis & Don Fullerton & Daniel H. Karney, 2014. "Negative Leakage," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 51 - 73.
  5. McInerney, Celine & Bunn, Derek, 2013. "Valuation anomalies for interconnector transmission rights," Energy Policy, Elsevier, vol. 55(C), pages 565-578.
  6. Deane, Paul & FitzGerald, John & Malaguzzi Valeri, Laura & Tuohy, Aidan & Walsh, Darragh, 2013. "Irish and British Historical Electricity Prices and Implications for the Future," Papers WP452, Economic and Social Research Institute (ESRI).
  7. Thomas Conefrey & John D. Fitz Gerald & Laura Malaguzzi Valeri & Richard S.J. Tol, 2013. "The impact of a carbon tax on economic growth and carbon dioxide emissions in Ireland," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 56(7), pages 934-952, September.
  8. Di Cosmo, Valeri & Hyland, Marie, 2012. "The ESRI Energy Model," Papers WP424, Economic and Social Research Institute (ESRI).
  9. di Cosmo, Valeria & Hyland, Marie, 2013. "Carbon Tax Scenarios and their Effects on the Irish Energy Sector," Papers RB2013/2/7, Economic and Social Research Institute (ESRI).
  10. Steggals, Will & Gross, Robert & Heptonstall, Philip, 2011. "Winds of change: How high wind penetrations will affect investment incentives in the GB electricity sector," Energy Policy, Elsevier, vol. 39(3), pages 1389-1396, March.
  11. Edenhofer, Ottmar & Bauer, Nico & Kriegler, Elmar, 2005. "The impact of technological change on climate protection and welfare: Insights from the model MIND," Ecological Economics, Elsevier, vol. 54(2-3), pages 277-292, August.
  12. Verde, Stefano & Tol, Richard S. J., 2009. "The Distributional Impact of a Carbon Tax in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 40(3), pages 317–338.
  13. William E., Lilley & Luke J., Reedman & Liam D., Wagner & Colin F., Alie & Anthony R., Szatow, 2012. "An economic evaluation of the potential for distributed energy in Australia," Energy Policy, Elsevier, vol. 51(C), pages 277-289.
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