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Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK

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  • Leroutier, Marion

    (Mistra Center for Sustainable Markets (Misum))

Abstract

Decreasing greenhouse gas emissions from electricity generation is crucial to tackle climate change. Empirically, however, little is known about the effectiveness of existing economic instruments in the power sector. This paper examines the impact of the UK Carbon Price Support (CPS), a carbon tax implemented in the UK power sector in 2013. Relative to a synthetic control unit built from other European countries, I find that emissions from the UK power sector declined by 20 to 26 percent per year on average between 2013 and 2017. The tax operated via three mechanisms: a decrease in emissions at the intensive margin; the closure of some high-emission plants at the extensive margin; and a higher probability of closure for plants already at risk due to European air quality regulations.

Suggested Citation

  • Leroutier, Marion, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," Misum Working Paper Series 2021-3, Stockholm School of Economics, Mistra Center for Sustainable Markets (Misum).
    • Handle: RePEc:hhs:hamisu:2021_003
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    More about this item

    Keywords

    carbon tax; electricity generation; synthetic control method;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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