Policies for decarbonizing a liberalized power sector

David M Newbery

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Given the agreed urgency of decarbonizing electricity and the need to guide decentralized private decisions, an adequate and credible carbon price appears essential. The paper defines and quantifies the useful concept of the break-even carbon price for mature zero-carbon electricity investments. It appears an attractive alternative given the difficulty of measuring the social cost of carbon, but modelling shows it extremely sensitive to projected fuel prices, the rate of interest, and the capital cost of generation options, all of which are very uncertain. This has important implications, and justifies combining a carbon price floor with suitable long-term contracts for electricity investments. The same sensitivity demonstrated for the break-even carbon price translates into similar sensitivities for marginal abatement cost curves.

Keywords: carbon price; electricity; investment; renewables; marginal abatement cost (search for similar items in EconPapers)
JEL-codes: C65 Q42 Q48 Q51 Q54 (search for similar items in EconPapers)
Date: 2016-02-24
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: dmgn
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Policies for decarbonizing a liberalized power sector (2018)
Working Paper: Policies for decarbonizing a liberalized power sector (2018)
Working Paper: Policies for decarbonizing a liberalized power sector (2018)
Working Paper: Policies for decarbonizing a liberalized power sector (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1614

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