Markets for Carbon and Power Pricing in Europe
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Markets for Carbon and Power Pricing in Europe

Theoretical Issues and Empirical Analyses

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.
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Chapter 2: The European Emissions Trading Scheme: Overview, Lessons and Perspectives

Liliya Chernyavs’ka


Liliya Chernyavs’ka INTRODUCTION 2.1 The increasing risk that radical/dramatic events caused by climate change could occur, having a negative impact on all aspects of human activity, raises the question concerning reduction of greenhouse gas (GHG) emissions. Now, in fact, most of the scientific community admits that there is a relationship between the increase in concentration of GHGs in the atmosphere and the rise in the average temperature of the planet, even though we are still far from explaining the exact mechanism of such a relationship. However, it is clear that the anthropogenic emissions have a strong negative role in the persisting increase in the concentration of GHGs and thus in climate change. The Kyoto Protocol is the first step towards the international commitment to mitigate the process of climate alteration. This agreement, signed in 1997, sets the overall amount of the reduction (–5.2 per cent, with respect to the level of emissions registered in 1990) to be achieved by the parties. This commitment is shared out in different proportions among groups of countries and among countries within each group on the basis of their economic development and contribution to global emissions. For example, the target for the European Union (EU) was fixed at –8 per cent. The reductions are to be achieved in five years, namely from 2008 to 2012. The Protocol also provides the rules and mechanisms (the so-called Kyoto ‘flexible’ mechanisms) to reach this goal most cost-effectively and equitably without precluding the economic development of...

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