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Carbon pass-through in the electricity sector: An econometric analysis

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  • Dagoumas, Athanasios S.
  • Polemis, Michael L.

Abstract

We conduct an econometric analysis to investigate, the carbon pass-through in the Greek electricity sector. For this reason, we utilize a rich micro-level panel dataset, including hourly data for 24 thermal power plants spanning the period from January 2014 to December 2017. In order to study the pass-through of emissions costs to wholesale electricity prices, we employ an instrumental variable approach. Our findings survived several robustness checks, accounting for logged linear and non-linear econometric specifications. The empirical results indicate the existence of an almost complete pass-through, revealing that retailers fully internalize the cost of CO2 permits. This study incurs important policy implications, since the complete pass-through signify that wholesale electricity prices will increase at least in the short run. However, the overall effect on retail prices will be mostly affected by the amount of CO2 permits and the fuel energy mix.

Suggested Citation

  • Dagoumas, Athanasios S. & Polemis, Michael L., 2020. "Carbon pass-through in the electricity sector: An econometric analysis," Energy Economics, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:eneeco:v:86:y:2020:i:c:s0140988319304189
    DOI: 10.1016/j.eneco.2019.104621
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    More about this item

    Keywords

    Pass-through; CO2 permits; Retailers; Econometric models; Electricity industry;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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