Carbon and energy prices under uncertainty: A theoretical analysis of fuel switching with heterogenous power plants

Bertrand, Vincent

doi:10.1016/j.reseneeco.2014.08.001

Cited by 21 publications

(6 citation statements)

References 23 publications

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“…Based on survey data, Heindl and Lo ¨schel (2012) find that during phase II process optimization and investment in energy efficiency were the most popular abatement options. Because these investments affect the price level of allowances but not daily fluctuations, the literature focuses on fuel switching prompted by the change in the "merit order" of electricity generation (i.e., the order in which generators are brought on line, usually based on lowest cost) as the most relevant short-term abatement option (e.g., Christiansen et al 2005;Kanen 2006;Bertrand 2014). Due to the structure of the electricity sector in Europe, fuel switching is expected to take place mainly between coal and gas.…”

Section: Marginal Abatement Costsmentioning

confidence: 99%

“…Thus, their effect on the allowance price depends on banking rules. Hintermann (2010) and Bertrand (2014) show that in the absence of banking across phases, variations in price fundamentals translate into stronger variations in allowance prices at the end of a trading phase. This is because it is increasingly less likely that temporary shocks will be counteracted by a later shock of the opposite sign during the remainder of the phase.…”

Section: Banking Of Allowancesmentioning

confidence: 99%

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Price and Market Behavior in Phase II of the EU ETS: A Review of the Literature

Hintermann

Peterson²,

Rickels³

2016

Review of Environmental Economics and Policy

117

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A cap-and-trade system is a market-based approach to controlling pollution/emissions where the regulating authority sets an overall emissions cap, or limit. This cap is divided into allowances, which give the holder the right to emit one unit of emissions (e.g., 1 ton of carbon dioxide), and distributed among the market participants. Allowances can be traded freely, and every market participant is required to surrender one allowance per unit of verified emissions.

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Section: Marginal Abatement Costsmentioning

confidence: 99%

Section: Banking Of Allowancesmentioning

confidence: 99%

Price and Market Behavior in Phase II of the EU ETS: A Review of the Literature

Hintermann

Peterson²,

Rickels³

2016

Review of Environmental Economics and Policy

117

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show abstract

“…Thus, in equation 10 23 Note that differences in the efficiency of power plants owned by a firm can inluence the cost of fuel switching and its dependence on fuel prices. See Bertrand (2012b) and Bertrand (2014). 24 While previous papers considered marginal abatement cost as a deterministic function increasing in abatement efforts, Carmona et al (2009) introduce a stochastic cost function which do not depend on abatement efforts.…”

Section: Theoretical Equilibrium Models For the Eu Etsmentioning

confidence: 99%

“…24 While previous papers considered marginal abatement cost as a deterministic function increasing in abatement efforts, Carmona et al (2009) introduce a stochastic cost function which do not depend on abatement efforts. For an alternative approach, with a cost function for fuel switching which depends on the level of effort, see Bertrand (2010) and Bertrand (2014).…”

Section: Theoretical Equilibrium Models For the Eu Etsmentioning

confidence: 99%

Modeling of Emission Trading: A Literature Review for Dynamic Partial Equilibrium Models With Perfect Competition

Bertrand¹

2015

Energy Studies Review

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This paper reviews the literature of emission trading models in case of partial equilibrium with perfect competition. First, we introduce the economics of pollution control and the origins of emission trading. Second, we review the static models of permit market, investigating a number of factors that can affect the effectiveness of emission trading. Next, we present dynamic models, analyzing questions such as banking/borrowing, relationship between spot and future markets, exogenous factors influencing the marginal abatement cost, etc. We end with recent studies that model the main features of the European Emission Trading Scheme in a dynamic framework with stochastic emissions.

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“…Aatola [17] used several econometric models to discover the relationship between carbon prices and energy prices, such as gas prices, electricity prices and coal prices. When emissions occurred seriously, CO 2 price is more sensitive to the gas price [18]. Macroeconomy is also an important factor for carbon price volatility [6,19].…”

Section: Introductionmentioning

confidence: 99%

The tail dependence of the carbon markets: The implication of portfolio management

Zhang

2020

PLoS ONE

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Emission trading scheme (ETS), the most popular market-based instrument, is widely used to solve carbon emission problems in the world. With the development of carbon market, carbon asset has been a popular financial product to invest and the risk management becomes important for government, regulated enterprises and other investors. As carbon prices have tail characteristics, this paper explores the extremal risks between carbon markets in US, Europe and China using tail dependence correlation coefficients. The empirical analysis demonstrates the tail dependence structure between carbon markets in US. and Europe is the same sign, which indicates that it is unwise to hold these two carbon assets as a portfolio. Moreover, the co-movements between European Union Emission Trade Scheme (EU ETS) and China's carbon markets are partly significant, and the operation mechanisms in China should be improved. In addition, the tail dependence test among the carbon pilots in China shows diversity. Hubei carbon trading pilot, located in central China, has extremal dependence with all other selected pilots for its regulatory program operation. The findings give insight to the carbon market regulars to improve the operation mechanism and are also useful for the investors to manage their portfolios, policymakers to make practically applicable regulations, and relevant organizations to develop procedures.

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Carbon and energy prices under uncertainty: A theoretical analysis of fuel switching with heterogenous power plants

Cited by 21 publications

References 23 publications

Price and Market Behavior in Phase II of the EU ETS: A Review of the Literature

Price and Market Behavior in Phase II of the EU ETS: A Review of the Literature

Modeling of Emission Trading: A Literature Review for Dynamic Partial Equilibrium Models With Perfect Competition

The tail dependence of the carbon markets: The implication of portfolio management

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