Markets for Carbon and Power Pricing in Europe

Markets for Carbon and Power Pricing in Europe

Theoretical Issues and Empirical Analyses

New Horizons in Environmental Economics series

Edited by Francesco Gullì

Why do power prices seem to be correlated with the carbon price in some markets and not in others? This crucial question is at the centre of Francesco Gullì’s enlightening book, through which the contributing authors investigate a number of related issues. In particular, they explore why power firms are not consistent in passing-through into power prices the opportunity cost of carbon. They also examine the relationship between the pass-through mechanism and the structure of the power market.

Chapter 9: The Joint Impact of Carbon Emissions Trading and Tradable Green Certificates on the Evolution of Liberalized Electricity Markets: The Spanish Case

Pedro Linares and Francisco J. Santos

Subjects: economics and finance, energy economics, environmental economics, environment, environmental economics

Extract

9. The joint impact of carbon emissions trading and tradable green certificates on the evolution of liberalized electricity markets: the Spanish case Pedro Linares and Francisco J. Santos1 INTRODUCTION 9.1 Climate change policies have clearly been escalating in the political agenda in recent years. The growing concern for the impacts of climate change, as recently updated by the Intergovernmental Panel on Climate Change (IPCC, 2007) is driving many governments to take action on reducing greenhouse gas emissions. Among the many policies available for achieving reductions, the most popular up to now have been setting up emissions trading markets, carbon taxes, and also the promotion of renewable energies. Emissions trading was contemplated under the Kyoto Protocol as one of the mechanisms available to reduce the cost of complying with reduction targets. However, it was not until the European Union implemented its Emissions Trading Scheme or ETS (EU Directive 2003/87/EC) that these markets really took flight. The relatively successful European experience has also prompted other countries to consider this mechanism: the US Senate, for instance, is currently considering several bills for the introduction of such a scheme, and other countries are doing the same. The implementation of these markets is also making carbon taxes redundant, and so the countries which featured them are abandoning this instrument. Renewable energy (RE) promotion policies, on the other hand, have a longer history. In fact, they were devised as a way to reduce energy dependency, and consideration was first given to them around 1973. However,...

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