Carbon Tax or Carbon Permits: The Impact on Generators' Risks

Richard Green

Discussion Papers from Department of Economics, University of Birmingham

Abstract: Volatile fuel prices affect both the cost and price of electricity in a liberalised market. Generators with the price-setting technology will face less risk to their profit margins than those with a technology that is not price-setting, even if its costs are not volatile. Emissions permit prices may respond to relative fuel prices, further increasing volatility. This paper simulates the impact of this on generators' profits, comparing an emissions trading scheme and a carbon tax against predictions for the UK in 2020. The carbon tax reduces the volatility faced by nuclear generators, but raises that faced by fossil fuel stations. Optimal portfolios would contain a higher proportion of nuclear plant if a carbon tax was adopted

Keywords: Electricity; emissions trading; emissions taxes; fuel price risk (search for similar items in EconPapers)
JEL-codes: L94 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2007-03
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Carbon Tax or Carbon Permits: The Impact on Generators Risks (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:07-02

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