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The Impact of a Carbon Tax on the CO2 Emissions Reduction of Wind

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  • Chi Kong Chyong, Bowei Guo, and David Newbery

Abstract

Energy policy aims to reduce emissions at least long-run cost while ensuring reliability. Its effecacy depends on the cost of emissions reduced. Britain introduced an additional carbon tax (the Carbon Price Support, CPS) for fuels used to generate electricity that by 2015 added £18/t CO2, dramatically reducing the coal share from 41% in 2013 to 6% in 2018. Policies have both short and long-run impacts. Both need to be estimated to measure carbon savings. The paper shows how to measure the Marginal Displacement Factor (MDF, tonnes CO2 /MWh) for wind. The short-run (SR) MDF is estimated econometrically while the long-run (LR) MDF is calculated from a unit commitment model of the GB system in 2015. We examine counter-factual fuel and carbon price scenarios. The CPS lowered the SR-MDF by 7% in 2015 but raised the LR-MDF (for a 25% increase in wind capacity) by 18%. We discuss reasons for the modest differences in the SR- and LR-MDFs.

Suggested Citation

  • Chi Kong Chyong, Bowei Guo, and David Newbery, 2020. "The Impact of a Carbon Tax on the CO2 Emissions Reduction of Wind," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:ej41-1-newbery
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    Cited by:

    1. Abrell, Jan & Kosch, Mirjam & Rausch, Sebastian, 2022. "How effective is carbon pricing?—A machine learning approach to policy evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    2. Guo, Bowei & Castagneto Gissey, Giorgio, 2021. "Cost pass-through in the British wholesale electricity market," Energy Economics, Elsevier, vol. 102(C).
    3. Leroutier, Marion, 2022. "Carbon pricing and power sector decarbonization: Evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    4. Chyong, Chi Kong & Newbery, David, 2022. "A unit commitment and economic dispatch model of the GB electricity market – Formulation and application to hydro pumped storage," Energy Policy, Elsevier, vol. 170(C).
    5. David Newbery, 2021. "Strengths and weaknesses of the British market model," Chapters, in: Jean-Michel Glachant & Paul L. Joskow & Michael G. Pollitt (ed.), Handbook on Electricity Markets, chapter 6, pages 156-181, Edward Elgar Publishing.
    6. Beltrami, Filippo, 2024. "The impact of hydroelectric storage in Northern Italy’s power market," Energy Policy, Elsevier, vol. 191(C).
    7. Xu, Q. & Hobbs, B., 2020. "Economic Efficiency of Alternative Border Carbon Adjustment Schemes: A Case Study of California Carbon Pricing and the Western North American Power Market," Cambridge Working Papers in Economics 20109, Faculty of Economics, University of Cambridge.
    8. Xu, Qingyu & Hobbs, Benjamin F., 2021. "Economic efficiency of alternative border carbon adjustment schemes: A case study of California Carbon Pricing and the Western North American power market," Energy Policy, Elsevier, vol. 156(C).
    9. Cullen, Joseph A. & Reynolds, Stanley S., 2023. "Market dynamics and investment in the electricity sector," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    10. Bowei Guo & Giorgio Castagneto Gissey, 2019. "Cost Pass-through in the British Wholesale Electricity Market: Implications of Brexit and the ETS reform," Working Papers EPRG1937, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    11. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," CIRED Working Papers halshs-03265636, HAL.
    12. Newbery, David M., 2023. "High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry," Energy Economics, Elsevier, vol. 126(C).
    13. Jia, Zhijie & Lin, Boqiang, 2020. "Rethinking the choice of carbon tax and carbon trading in China," Technological Forecasting and Social Change, Elsevier, vol. 159(C).
    14. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," Working Papers halshs-03265636, HAL.
    15. Hu, Haisheng & Dong, Wanhao & Zhou, Qian, 2021. "A comparative study on the environmental and economic effects of a resource tax and carbon tax in China: Analysis based on the computable general equilibrium model," Energy Policy, Elsevier, vol. 156(C).

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