Low-cost greenhouse gas abatement via emission intensities

Abstract

Following recent international commitments to reduce greenhouse gas emissions, governments around the world are considering various emissions abatement strategieswith electricity sectors required to play a key role. Cap-and-trade schemes and carbon taxes are among the most frequently implemented and discussed policy approaches. However, these schemes can have negative economic impacts due to energy price increases, as well as their interactions with pre-existing taxes. An alternative approach, known as an emissions-intensity scheme (EIS), can mitigate the extent of these negative economic consequences. Rather than setting an absolute cap on emissions, an EIS targets the emissions intensities of individual generators by establishing a sector-wide emissions-intensity baseline. The current paper investigates the influence of EIS policy parameters on total emissions, electricity prices, and net scheme revenue. A simulationbased approach is adopted, utilizing a direct current optimal power flow (DC OPF) modelling framework. In doing so, the complementary roles of the emissions price and emissions-intensity baseline are illustrated. Data from the simulation based analysis are then used to demonstrate how, for some systems, an EIS may be calibrated to deliver emissions abatement without increasing electricity prices, and at no cost to the government.