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The impact of a Carbon Tax on the CO2 emissions reduction of wind

Author

Listed:
  • Chi Kong Chyong

    (EPRG, University of Cambridge)

  • Bowei Guo

    (Faculty of Economics, University of Cambridge.)

  • David Newbery

    (EPRG, University of Cambridge.)

Abstract

Energy policy aims to reduce emissions at least long-run cost while ensuring reliability. Its efficacy 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 MDF is estimated econometrically while the long-run 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 short-run SR-MDF by 7% in 2015 but raised the long-run LR-MDF (for a 25% increase in wind capacity) by 18%. We discuss reasons for the modest differences in the SR and LR MDFs. The CPS raised the 2016 wholesale price by £6.22/MWh with impacts on interconnector trade.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Chi Kong Chyong & Bowei Guo & David Newbery, 2019. "The impact of a Carbon Tax on the CO2 emissions reduction of wind," Working Papers EPRG 1904, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1904
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    References listed on IDEAS

    as
    1. Wheatley, Joseph, 2013. "Quantifying CO2 savings from wind power," Energy Policy, Elsevier, vol. 63(C), pages 89-96.
    2. Amor, Mourad Ben & Billette de Villemeur, Etienne & Pellat, Marie & Pineau, Pierre-Olivier, 2014. "Influence of wind power on hourly electricity prices and GHG (greenhouse gas) emissions: Evidence that congestion matters from Ontario zonal data," Energy, Elsevier, vol. 66(C), pages 458-469.
    3. González-Aparicio, I. & Zucker, A., 2015. "Impact of wind power uncertainty forecasting on the market integration of wind energy in Spain," Applied Energy, Elsevier, vol. 159(C), pages 334-349.
    4. Staffell, Iain, 2017. "Measuring the progress and impacts of decarbonising British electricity," Energy Policy, Elsevier, vol. 102(C), pages 463-475.
    5. Amor, Mourad Ben & Billette de Villemeur, Etienne & Pellat, Marie & Pineau, Pierre-Olivier, 2014. "Influence of wind power on hourly electricity prices and GHG emissions: Evidence that congestion matters from Ontario zonal data," MPRA Paper 53630, University Library of Munich, Germany.
    6. Thomson, R. Camilla & Harrison, Gareth P. & Chick, John P., 2017. "Marginal greenhouse gas emissions displacement of wind power in Great Britain," Energy Policy, Elsevier, vol. 101(C), pages 201-210.
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    Citations

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    Cited by:

    1. Guo, Bowei & Castagneto Gissey, Giorgio, 2021. "Cost pass-through in the British wholesale electricity market," Energy Economics, Elsevier, vol. 102(C).
    2. Leroutier, Marion, 2022. "Carbon pricing and power sector decarbonization: Evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    3. 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).
    4. Cullen, Joseph A. & Reynolds, Stanley S., 2023. "Market dynamics and investment in the electricity sector," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    5. 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).
    6. 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.
    7. 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.
    8. 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).
    9. Newbery, David M., 2023. "High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry," Energy Economics, Elsevier, vol. 126(C).
    10. Beltrami, Filippo, 2024. "The impact of hydroelectric storage in Northern Italy’s power market," Energy Policy, Elsevier, vol. 191(C).
    11. 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).
    12. 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.
    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. Marion Leroutier, 2021. "Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK," CIRED Working Papers halshs-03265636, HAL.

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    More about this item

    Keywords

    Carbon pricing; fuel mix; wind; marginal displacement factors; unit commitment model; econometrics;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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