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Price and welfare effects of emission quota allocation

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Forfattere:

Golombek, Rolf, Sverre A.C. Kittelsen and Knut Einar Rosendahl

År:

2013

Referanse:

Energy Economics

Vol 36, 568-580

Summary

We analyze how different ways of allocating emission quotas may influence the electricity market. Using a large-scale numerical model of the Western European energy market with heterogeneous electricity producers, we show that different allocation mechanisms can have very different effects on the electricity market, even if the total emission target is fixed. This is particularly the case if output-based allocation (OBA) of quotas is used. Gas power production is then substantially higher than if quotas are grandfathered. Moreover, the welfare costs of attaining a fixed emission target are significantly higher. The numerical results for OBA are supported by a theoretical analysis, which offers some new results.

Nøkkelord:

Quota market; Electricity market; Allocation of quotas

JEL:

D61; H23; Q41; Q58

Prosjekt info:

Oppdragsgiver: Norges forskningsråd
Oppdragsgivers prosjektnr.: 209698
Frisch prosjekt: 3100 - Oslo Center for Research on Environmentally friendly Energy (CREE)

Kontakt:

rolf.golombek@frisch.uio.no

Finansiering:

NFR