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Effects of electricity demand reductions under a carbon pricing regime on emissions: lessons from COVID-19

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  • Haxhimusa, Adhurim
  • Liebensteiner, Mario

Abstract

The coronavirus pandemic (COVID-19) has led to a massive collapse in economic activity and energy demand, with the result of significant emissions reductions at a global scale. However, the existing literature investigating abatement from COVID-19 mainly overlooked the overwhelming emissions reduction in Europe's power sector. We address this by assessing the intricate relationship between electricity demand shocks and heterogeneous generation technologies in the power sectors of 16 major European economies during January to March 2020. We apply an econometric model in an instrumental-variables framework. In a first step, we assess the impact of COVID-19 infections on electricity demand, and in a second step how this translates into emissions abatement. We find that, during full lockdown, COVID-19 reduced electricity demand by 19% and carbon emissions by an astonishing 34% per hour, whereas there is severe country heterogeneity depending on the electricity supply structure and demand shock intensity. From our estimates, we predict that power sector emissions fell by 18.4% in 2020. Our results reveal the importance of a carbon price, so that a demand reduction can offset large amounts of emissions by displacing coal at the margin. We derive several policy implications from our analysis to draw lessons from the pandemic.

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  • Haxhimusa, Adhurim & Liebensteiner, Mario, 2021. "Effects of electricity demand reductions under a carbon pricing regime on emissions: lessons from COVID-19," Energy Policy, Elsevier, vol. 156(C).
  • Handle: RePEc:eee:enepol:v:156:y:2021:i:c:s0301421521002627
    DOI: 10.1016/j.enpol.2021.112392
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    Cited by:

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    3. Weijiang Liu & Min Liu & Tingting Liu & Yangyang Li & Yizhe Hao, 2022. "Does a Recycling Carbon Tax with Technological Progress in Clean Electricity Drive the Green Economy?," IJERPH, MDPI, vol. 19(3), pages 1-18, February.
    4. Bigerna, Simona & Bollino, Carlo Andrea & D'Errico, Maria Chiara & Polinori, Paolo, 2022. "COVID-19 lockdown and market power in the Italian electricity market," Energy Policy, Elsevier, vol. 161(C).
    5. Yanwei Lyu & You Wu & Wenqiang Wang & Jinning Zhang, 2024. "The Impact Of Covid-19 Pandemic On Carbon Emissions: Empirical Evidence From China," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 27(1), pages 133-150, March.
    6. Salaheddin Malkawi & Suhil Kiwan & Sajedah Alzghoul, 2022. "Impact of COVID-19 Response Measures on Electricity Sector in Jordan," Energies, MDPI, vol. 15(10), pages 1-18, May.
    7. Shah, Muhammad Ibrahim & Foglia, Matteo & Shahzad, Umer & Fareed, Zeeshan, 2022. "Green innovation, resource price and carbon emissions during the COVID-19 times: New findings from wavelet local multiple correlation analysis," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    8. Xu, Xinkuo & Li, Jingsi, 2023. "Can green bonds reduce the carbon emissions of cities in China?," Economics Letters, Elsevier, vol. 226(C).
    9. Liebensteiner, Mario & Naumann, Fabian, 2022. "Can carbon pricing counteract renewable energies’ cannibalization problem?," Energy Economics, Elsevier, vol. 115(C).

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    More about this item

    Keywords

    Coronavirus; COVID-19; Electricity demand; Emissions; Carbon pricing;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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