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Emissions Trading in Forward and Spot Markets for Electricity

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  • Makoto Tanaka and Yihsu Chen

Abstract

Tradable allowances have received considerable attention in recent years. One emerging issue is their interaction with electricity markets. This paper extends the model of Allaz and Vila (1993) by incorporating emissions trading with forward and spot markets for electricity. We focus on the effects of strategic forward position and initial allowances allocation on the equilibrium outcomes. We find that firms with a dirty portfolio would have stronger incentives to take a long position in the forward market to raise the electricity price. Increasing the amount of allowances assigned to clean firms leads to a reduction in electricity and allowance prices.

Suggested Citation

  • Makoto Tanaka and Yihsu Chen, 2012. "Emissions Trading in Forward and Spot Markets for Electricity," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    • Handle: RePEc:aen:journl:33-2-09
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    References listed on IDEAS

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    Cited by:

    1. Chaparro, Iván & Watts, David & Gil, Esteban, 2017. "Modeling marginal CO2 emissions in hydrothermal systems: Efficient carbon signals for renewables," Applied Energy, Elsevier, vol. 204(C), pages 318-331.
    2. Falcke, Florian & Madlener, Reinhard, 2016. "Potential Impacts of the Planned Market Stability Reserve on Speculators’ Behavior in the EU Emissions Trading System," FCN Working Papers 9/2016, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    3. Anne Schopp & Karsten Neuhoff, 2013. "The Role of Hedging in Carbon Markets," Discussion Papers of DIW Berlin 1271, DIW Berlin, German Institute for Economic Research.

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