The Impact of the EU ETS on Prices,Profits and Emissions in the Power Sector: Simulation Results with the COMPETES EU20 Model |
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Authors: | Wietze Lise Jos Sijm Benjamin F Hobbs |
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Institution: | (1) Faculty of Law, Department of Law and Economics, University of Groningen, P.O. Box 716, 9700 AS Groningen, The Netherlands |
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Abstract: | This paper analyses the impact of the EU Emissions Trading Scheme (ETS) on electricity prices, in particular on wholesale
power markets across the EU. To study this impact, this paper discusses the major results of a bottom-up modelling analysis
of the implications of emissions trading for the performance of the wholesale power market in 20 European countries. The analyses
show that a significant part of the costs of (freely allocated) CO2 emission allowances is passed through to power prices, resulting in higher electricity prices for consumers and additional
(‘windfall’) profits for power producers, even in cases of full auctioning. In addition, they show that the ETS-induced increases
in power prices depend not only on the level of CO2 prices but also on the structure of the power market, i.e., the incidence of market power, and the price responsiveness of
power demand. Finally, the analyses show that the internalization and pass-through of carbon costs are crucial elements in
a policy regime to reduce CO2 emissions by both changing the mix of power generation technologies and lowering total electricity demand. |
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