With the introduction of CO2 allowances, the European Union Carbon Trading Scheme (EU ETS) has imposed a price on the CO2 emissions of power generating companies. In line with economic theory, these companies pass on the costs of allowances and integrate it into the price of electricity. Due to the specific remuneration of electricity supplied at different periods due to fluctuating demand this affects the infra-marginal rents gained by different technologies. This paper provides a methodology for determining the specific interaction of the imposition of such a CO2 constraint on the price-setting mechanism in the power generation sector, given the context of marginal cost pricing in a liberalized European electricity market. As nearly 100 % of these allowances are allocated for free between 2005 and 2012, previous marginal and inframarginal rents have been profoundly modified since 2005. Building on the proposed methodology, the article provides an empirical estimation of the rents of power producers during Phase I of the EU-ETS (2005-2007) according to the different technologies. Finally, the paper assesses the impact on rents of the upcoming switch from free allocation of allowances to auctioning by 2013. 2 WP-LEDa n°4-2009 dfqdsf provisoire-ne dsfqsddf diffuser 1.

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