Implications of announced phase II national allocation plans for the EU ETS

Neuhoff, Karsten; Åhman, Markus; Betz, Regina C.; Cludius, Johanna; Ferrario, Federico; Holmgren, Kristina; Pál, Gabriella; Grubb, Michael; Matthes, Felix Christian; Rogge, Karoline S.; Sato, Misato; Schleich, Joachim; Sijm, J.P.M.; Tuerk, Andreas; Kettner, Claudia; Walker, Neil

doi:10.3763/cpol.2006.0627

Cited by 17 publications

(22 citation statements)

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“…This could have adverse consequences for industries falling both within and outside the scope of the ETS (see e.g. Egenhofer et al 2005;Sijm et al 2006;Neuhoff et al 2006;Legambiente 2007).…”

Section: Costs and Benefitsmentioning

confidence: 99%

Navigating the dilemmas of climate policy in Europe: evidence from policy evaluation studies

et al. 2009

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Climate change is widely recognised as a 'wicked' policy problem. Agreeing and implementing governance responses is proving extremely difficult. Policy makers in many jurisdictions now emphasise their ambition to govern using the best available evidence. One obvious source of such evidence is the evaluations of the performance of existing policies. But to what extent do these evaluations provide insights into the difficult dilemmas that governors typically encounter? We address this question by reviewing the content of 262 evaluation studies of European climate policies in the light of six kinds of dilemma found in the governance literature. We are interested in what these studies say about the performance of European climate policies and in their capacity to inform evidence-based policy-making. We find that the evaluations do arrive at common findings: that climate change is framed as a problem of market and/or state failure; that voluntary measures tend to be ineffective; that market-based instruments tend to be regressive; that EUlevel policies have driven climate policies in the latecomer EU Member States; and that lack of monitoring and weak enforcement are major obstacles to effective policy implementation. However, we also conclude that the evidence base these studies represent is surprisingly weak for such a high profile area. There is too little systematic climate policy evaluation work in the EU to support systematic evidence- based policy making. This reduces the scope for sound policy making in the short run and is a constraint to policy learning in the longer term.

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Section: Costs and Benefitsmentioning

confidence: 99%

Navigating the dilemmas of climate policy in Europe: evidence from policy evaluation studies

et al. 2009

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“…The first phase (2005)(2006)(2007), the so-called "learning by doing phase", was introduced to test the functioning of the EU-ETS system. Its implementation led to some economic distortions mainly due to the grandfathering of the emission allowances (Neuhoff et al, 2006a(Neuhoff et al, , 2006bReinaud, 2003Reinaud, , 2005 and to the consequent raise of "windfall profits" for the power sector (Sijm et al, 2006). Compared to the energy intensive industries involved in the EU-ETS, generators are able to pass through a high proportion of their carbon costs in electricity prices despite the fact that almost all CO 2 permits, needed to cover their emissions, are freely distributed.…”

Section: Since 2005 the Energy Sector Is Involved In The European Emmentioning

confidence: 99%

“…Note that, besides these investments, generators use existing plants to produce electricity. In particular, both with and without incentives, they run all renewables 16 and CCGT technologies. While renewables are run at full capacity in almost all hours, existing CCGT is mainly used in the central hours (from 10 a.m to 5 p.m.).…”

Section: Impact On Investmentsmentioning

confidence: 99%

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Evaluating the Impacts of the EU-ETS on Prices, Investments and Profits of the Italian Electricity Market

et al. 2012

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In this paper we investigate the economic impacts of the European Emission Trading Scheme (EU-ETS) on the Italian electricity market by a power generation expansion model. In particular, we assume that generators make their capacity expansion decisions in a Cournot or in a perfect competition manner. This model is used to measure the effects of the EU-ETS Directives on electricity prices and demand, investments and generators' profits both in an oligopolistic and in a perfectly competitive organization of the power market. We adopt a technological representation of the energy market which is discretized into six geographical zones (North, Center-North, CenterSouth, South, Sicily, Sardinia) and five virtual poles (Monfalcone, Foggia, Brindisi, Rossano, Priolo) with limited production for a total of eleven zones. We assume that generators operate in different zones connected by interconnections with limited capacity and produce energy by running existing or new plants in which they directly invest. We consider several investment scenarios under the CO2 regulation with and without incentives to renewables. The scenarios also include simulations on future effects of the third EU-ETS phase on the system. Our analysis shows that perfect competition induces generators to invest more than in an oligopolistic framework, but in both market configurations, investments are mainly concentrated in fossil-red plants (CCGT and coal), leaving a small proportion to new wind plants. This happens also in presence of incentives given to renewable technologies. We can thus conclude that investments in a secure and efficient technology like CCGT are preferable compared to those in renewables that cannot be used with continuity. This investment policy affects electricity prices that significantly increase in 2020 compared to their 2009 levels. The raise of electricity prices in 2020 is particularly favorable for generators operating as Cournot players which are able to increase their profits compared to 2009, despite the full auctioning system foreseen for the allocation of CO2 allowance to the power sector in the third EU-ETS phase. The solution of the overall system is found by exploiting the mixed complementarity theoretical framework and solution algorithms. The developed model is implemented as complementarity problems and solved in GAMS using the PATH solver. Keywords: Complementarity Conditions, General Equilibrium Models, EU-ETS, Italian Electricity Market JEL Classification: Q4, Q48The work has been financially supported by the grant "Regione Lombardia: Metodi di integrazione delle fonti energetiche rinnovabili e monitoraggio satellitare dell 'impatto ambientale", EN-17, ID 17369.10 AbstractIn this paper we investigate the economic impacts of the European Emission Trading Scheme (EU-ETS) on the Italian electricity market by a power generation expansion model. In particular, we assume that generators make their capacity expansion decisions in a Cournot or in a perfect competition manner. This model is used to measure the eff...

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“…Even if perfect markets are assumed, governments may carefully use the instrument of free allocation because of resulting welfare transfers from consumers to producers, also called windfall profits [2,16,5,8]. Dependent on the principles that allocation decisions are based on, the risk of generating perverse incentives for regulated firms might exist [12]. Free allocation further decreases the options for revenue recycling (e.g.…”

Section: Economic Efficiency and Market Powermentioning

confidence: 99%

Mitigating Market Power under Tradeable Permits

Heindl¹

2012

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Das Wichtigste in KürzeWie durch R. Hahn (1984) Non-Technical SummaryAs shown by R. Hahn (1984), free allocation to a firm with market power equal to the amount of permits the firm uses in a competitive equilibrium can prevent welfare losses under market power. In this paper an alternative option to mitigate market power is proposed. If the regulating authority is unwilling or unable to hand out 'full' free allocation to a firm with market power, it may alternatively alter the economy wide emissions constraint (cap). Changing the cap can lead to a situation where the firm with market power will choose a price similar to the competitive equilibrium. As a consequence, marginal abatement costs of regulated firms are equated and the least cost solution is achieved. If the cap is chosen efficiently, so that marginal benefits and marginal costs of regulation are equated, changing the cap may decrease social welfare. To account for this effect, marginal social damages from changing the cap are balanced to marginal gains from mitigating market power. By doing so, a second-best solution to mitigate market power in permit markets is derived. Mitigating Market Power under Tradeable PermitsPeter Heindl * October 8, 2012 AbstractAs shown by R. Hahn [6], free allocation equal to the amount of permits a firm with market power uses in equilibrium, can prevent welfare losses. If the necessary amount of free allocation is not provided to the firm with market power, a second best solution is obtained where marginal abatement costs of regulated firms are not equated. In this paper, it is proposed that the government may change the economy wide emissions constraint (cap) as a response to market power, e.g. when free allocation cannot be adjusted. Changing the cap can lead to a situation where marginal abatement costs are equated in the presence of market power. Because changing the cap will lead to changes of social welfare, both effects must be balanced. It is shown that there exists a second best social optimum by balancing the positive effect of limiting market power and the negative effect of changing the cap.

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Implications of announced phase II national allocation plans for the EU ETS

Cited by 17 publications

References 10 publications

Navigating the dilemmas of climate policy in Europe: evidence from policy evaluation studies

Navigating the dilemmas of climate policy in Europe: evidence from policy evaluation studies

Evaluating the Impacts of the EU-ETS on Prices, Investments and Profits of the Italian Electricity Market

Mitigating Market Power under Tradeable Permits

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