Impacts of the European Emission Trade System on Finnish Wholesale Electricity Prices

Adriaan Perrels, Juha Honkatukia and Ville Mälkönen

No 405, Discussion Papers from VATT Institute for Economic Research

Abstract: This study deals with the matter to what extent the costs of the EU Emission Trade System (EU ETS) end up in the electricity prices. The study encompasses both a theoretical and an empirical review of electricity price formation. It includes an econometric analysis of electricity price formation and the impact of EU ETS on power prices. On the basis of the econometric analysis is concluded that cost compensation due to EU ETS is indeed occurring. On average, about 75% to 95% of a price change in EU ETS is passed on to the Finnish NordPool spot price. The analysis also shows that the degree of utilisation of generation capacity (and hence the network loads) have an effect on electricity prices. This hints at possible market imperfections and can aggravate the price effects of EU ETS.

Keywords: Electricity markets; emission trading; competitiveness; Energy; Energia; Environment; Ympäristö; Labor market and policies promoting economic growth; Työmarkkinat ja kasvua tukeva politiikka (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-eec, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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