Price and welfare effects of emission quota allocation

Rolf Golombek, Sverre Kittelsen and Knut Einar Rosendahl

Discussion Papers from Statistics Norway, Research Department

Abstract: We analyze how different ways of allocating emission quotas may influence the electricity market. Using a large-scale numerical model of the Western European energy market, we show that different allocation mechanisms can have very different effects on the electricity market, even if the total emission target is fixed. This is particularly the case if output-based allocation (OBA) of quotas is used, with gas power production substantially higher, partly at the expense of renewable and coal power, than if grandfathering and auctioning based mechanisms are used. The price of emissions is almost twice as high. Moreover, even though electricity prices are lower, the welfare costs of attaining a fixed emission target are significantly higher. The paper analyzes other allocation mechanisms as well, leading to yet more outcomes in the electricity market. The numerical results for OBA are supported by theoretical analysis, with some new general results.

Keywords: Quota market; Electricity market; Allocation of quotas (search for similar items in EconPapers)
JEL-codes: D61 H23 Q41 Q58 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.ssb.no/a/publikasjoner/pdf/DP/dp661.pdf (application/pdf)

Related works:
Journal Article: Price and welfare effects of emission quota allocation (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ssb:dispap:661

Access Statistics for this paper

More papers in Discussion Papers from Statistics Norway, Research Department P.O.Box 8131 Dep, N-0033 Oslo, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by L Maasø ().