Free EUAs and fuel switching

Paolo Falbo, Daniele Felletti and Silvana Stefani

Energy Economics, 2013, vol. 35, issue C, 14-21

Abstract: This paper focuses on the impact of EUAs on the optimal policy of a competitive electricity producer. The effect of grandfathering is consistently shown to introduce significant distortions to the system. It is theoretically shown that there is a threshold value of carbon price so that, for prices above this, the EUA becomes an incentive for reduced production rather than a penalty for inefficient producers. These theoretical results are supported by the data of one producer from Italy and one from Germany. Furthermore, the empirical evidence concludes that the high level of free allowances may generate a shift in production from less to more polluting technologies.

Keywords: Emission markets; Electricity production; Renewable resources; EUA; Green Certificates (search for similar items in EconPapers)
JEL-codes: Q40 Q42 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:35:y:2013:i:c:p:14-21

DOI: 10.1016/j.eneco.2011.12.007

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