Impacts of the European Emissions Trading Scheme Directive and Permit Assignment Methods on the Spanish Electricity Sector

Abstract

This paper assesses the economic impact of the European Emissions Trading Scheme Directive on the Spanish electricity sector. Although some other studies have been carried out before, our approach uses a more detailed model for the Spanish electricity sector, which provides more realistic results both for the expected price of the carbon allowance and for the evolution of electricity prices, installed power and firms’ revenues in Spain. Results show that the implementation of the Directive will result in a significant increase of electricity prices, and also, due to the Spanish pricing system, in a large increase in the revenues of generating firms, unless the regulator intervenes. Results also show the different implications of different assignment methods. This is especially relevant currently given that most European countries are approving their national assignment plans for 2005-07 and have to revise them for 2008.

Implications of CO2 emissions trading for short-run electricity market outcomes in northwest Europe

“…cost pass-through in the short-run, considering interactions of the ETS with transmission constraints. Further, we examine differences in how firms with various generation mixes respond to EU ETS; Linares et al (2006) instead emphasize aggregate electricity effects under various allowances allocation schemes in the long-run without considering transmission.…”

“…1,2 Two important questions concern the extent to which CO 2 costs would be passed on to power prices, and second, the effect of those price changes on generator profits. 3 A number of studies examined the effect of the EU ETS on the EU power sector Sijm 2004;Linares et al 2006;Lise and Kryseman 2007). Linares et al (2006) develop an oligopoly electricity market model with capacity expansion to assess the impacts of the ETS on the Spanish electricity sector over 2005-2014.…”

“…3 A number of studies examined the effect of the EU ETS on the EU power sector Sijm 2004;Linares et al 2006;Lise and Kryseman 2007). Linares et al (2006) develop an oligopoly electricity market model with capacity expansion to assess the impacts of the ETS on the Spanish electricity sector over 2005-2014. This model determines endogenously allowance prices using a residual (non-power sector) demand curve for allowances.…”

The Impact of the EU ETS on Prices, Profits and Emissions in the Power Sector: Simulation Results with the COMPETES EU20 Model

“…In order to assess the impact of the EU ETS on the Spanish electricity sector, Linares et al (2006) apply a model called ESPAM. This is a technology-detailed, oligopolistic market model of the Spanish power system which simulates expansion of generation capacity and endogenously determines CO 2 allowance prices.…”

Research on carbon emission trading mechanisms: current status and future possibilities

“…For instance, both Linares et al (2006) and Smale et al (2006) suggest that carbon emissions allowance is part of the direct costs of power generators, and the emergence of the EU ETS obviously promotes power price to rise. Specifically, Kara et al (2008) reveal that during 2008-2012, the rise of 1 euro per ton of CO 2 may lead to the increase of Northern European power price about 0.74 euro per MWh.…”