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Free EUAs and fuel switching

Author

Listed:
  • Falbo, Paolo
  • Felletti, Daniele
  • Stefani, Silvana

Abstract

This paper focuses on the impact of EUAs on the optimal policy of a competitive electricity producer. The effect of grandfathering is consistently shown to introduce significant distortions to the system. It is theoretically shown that there is a threshold value of carbon price so that, for prices above this, the EUA becomes an incentive for reduced production rather than a penalty for inefficient producers. These theoretical results are supported by the data of one producer from Italy and one from Germany. Furthermore, the empirical evidence concludes that the high level of free allowances may generate a shift in production from less to more polluting technologies.

Suggested Citation

  • Falbo, Paolo & Felletti, Daniele & Stefani, Silvana, 2013. "Free EUAs and fuel switching," Energy Economics, Elsevier, vol. 35(C), pages 14-21.
    • Handle: RePEc:eee:eneeco:v:35:y:2013:i:c:p:14-21
    DOI: 10.1016/j.eneco.2011.12.007
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    References listed on IDEAS

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    Cited by:

    1. Federica Cucchiella & Idiano D Adamo & Massimo Gastaldi, 2015. "Profitability Analysis for Biomethane: A Strategic Role in the Italian Transport Sector," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 440-449.
    2. Petr Cermak & Jarmila Zimmermannova & Jan Lavrincik & Miroslav Pokorny & Jiri Martinu, 2015. "The Broker Simulation Model in the Emission Allowances Trading Area," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 80-95.
    3. Fredrik von Malmborg & Peter A. Strachan, 2023. "Advocacy Coalitions and Paths to Policy Change for Promoting Energy Efficiency in European Industry," Energies, MDPI, vol. 16(9), pages 1-21, April.
    4. Sun, YongPing & Xue, JinJun & Shi, XunPeng & Wang, KeYing & Qi, ShaoZhou & Wang, Lei & Wang, Cheng, 2019. "A dynamic and continuous allowances allocation methodology for the prevention of carbon leakage: Emission control coefficients," Applied Energy, Elsevier, vol. 236(C), pages 220-230.
    5. Jarmila Zimmermannová, 2015. "Pilot Analysis of the Behaviour of Companies Within the 3rd Trading Period of the EU ETS in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(6), pages 2213-2220.
    6. Julien Chevallier & Stéphane Goutte, 2017. "Estimation of Lévy-driven Ornstein–Uhlenbeck processes: application to modeling of $$\hbox {CO}_2$$ CO 2 and fuel-switching," Annals of Operations Research, Springer, vol. 255(1), pages 169-197, August.

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    More about this item

    Keywords

    Emission markets; Electricity production; Renewable resources; EUA; Green Certificates;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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