Pass-through of CO2 Emission Costs to Hourly Electricity Prices in Germany

Beat Hintermann

No 4964, CESifo Working Paper Series from CESifo

Abstract: I estimate the level of emissions cost pass-through to hourly wholesale electricity prices in Germany, based on spot market data. I control for contemporaneous shocks to demand and supply by constructing a detailed supply curve for fossil generation, and intersecting it with residual demand for fossil-based electricity for every hour. Determining the marginal generator allows me to use marginal fuel and carbon costs (rather than prices) as explanatory variables in order to identify the level of cost pass-through directly and with a high level of precision. I find that carbon costs are passed through to electricity prices by at least 84 %, with a central range of 98 %–104 % for different load periods. My results suggest that there is no economic reason for free allowance allocation to the electricity sector, and thus validate the updated allocation rules in Phase 3 of the European Union Emissions Trading Scheme.

Keywords: EU ETS; emission trading; air pollution; cost pass-through; electricity; climate change (search for similar items in EconPapers)
JEL-codes: H23 H32 Q48 Q52 Q53 Q54 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Pass-Through of CO2 Emission Costs to Hourly Electricity Prices in Germany (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4964

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