IDEAS home Printed from https://ideas.repec.org/p/zbw/inwedp/dp642016.html
   My bibliography  Save this paper

Optimal emission prices for a district heating system owner

Author

Listed:
  • Wehrle, Sebastian
  • Schmidt, Johannes

Abstract

Low emission prices have stirred up discussion about political measures that aim to increase emission prices. District heating system operators, often municipal utilities, use a variety of heat generation technologies that are affected by the emission trading system. We examine whether district heating system owners have an incentive to support measures that increase emission prices in the short term. Therefore, we (i) develop a simplified analytical framework to analyse optimal decisions of a district heating operator, and (ii) investigate the market-wide effects of increasing emission prices, in particular the pass-through of emission prices to power prices. Using the clustered unit commitment model MEDEA of the common Austrian and German power system, we estimate a pass-through from emission prices to power prices between 1.1 and 0.75, depending on the absolute emission price level. Under reasonable assumptions regarding heat generation technologies, the pass-through from higher emission prices to power prices is about twice as high as required to make low-emission district heating system owners better off.

Suggested Citation

  • Wehrle, Sebastian & Schmidt, Johannes, 2016. "Optimal emission prices for a district heating system owner," Discussion Papers DP-64-2016, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.
    • Handle: RePEc:zbw:inwedp:dp642016
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/235190/1/dp64-2016.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Huppmann, Daniel & Siddiqui, Sauleh, 2018. "An exact solution method for binary equilibrium problems with compensation and the power market uplift problem," European Journal of Operational Research, Elsevier, vol. 266(2), pages 622-638.
    2. Jouvet, Pierre-André & Solier, Boris, 2013. "An overview of CO2 cost pass-through to electricity prices in Europe," Energy Policy, Elsevier, vol. 61(C), pages 1370-1376.
    3. Beat Hintermann, 2016. "Pass-Through of CO2 Emission Costs to Hourly Electricity Prices in Germany," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 857-891.
    4. Maximilian Schumacher & Lion Hirth, 2015. "How much Electricity do we Consume? A Guide to German and European Electricity Consumption and Generation Data," Working Papers 2015.88, Fondazione Eni Enrico Mattei.
    5. Jos Sijm & Karsten Neuhoff & Yihsu Chen, 2006. "CO 2 cost pass-through and windfall profits in the power sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 49-72, January.
    6. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
    7. repec:dau:papers:123456789/7761 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:inwedp:642016 is not listed on IDEAS
    2. Sebastian Wehrle & Johannes Schmidt, 2016. "Optimal emission prices for a district heating system owner," Working Papers 642016, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.
    3. Andrianesis, Panagiotis & Biskas, Pandelis & Liberopoulos, George, 2021. "Evaluating the cost of emissions in a pool-based electricity market," Applied Energy, Elsevier, vol. 298(C).
    4. Georg Wolff & Stefan Feuerriegel, 2019. "Emissions Trading System of the European Union: Emission Allowances and EPEX Electricity Prices in Phase III," Energies, MDPI, vol. 12(15), pages 1-15, July.
    5. Chen, Zhe & Chen, Yan-ling & Su, Yue & Wang, Xue-ying & Wu, You, 2023. "The CO2 cost pass-through in nonlinear emission trading schemes," Journal of Commodity Markets, Elsevier, vol. 30(C).
    6. Beat Hintermann & Maja Žarković & Corrado Di Maria & Ulrich J. Wagner, 2020. "The Effect of Climate Policy on Productivity and Cost Pass-Through in the German Manufacturing Sector," CRC TR 224 Discussion Paper Series crctr224_2020_249, University of Bonn and University of Mannheim, Germany.
    7. Guo, Bowei & Castagneto Gissey, Giorgio, 2021. "Cost pass-through in the British wholesale electricity market," Energy Economics, Elsevier, vol. 102(C).
    8. Sebastian Wehrle & Johannes Schmidt, 2018. "District heating systems under high CO2 emission prices: the role of the pass-through from emission cost to electricity prices," Papers 1810.02109, arXiv.org.
    9. 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.
    10. Germeshausen, Robert & Wölfing, Nikolas, 2019. "How marginal is lignite? Two simple approaches to determine price-setting technologies in power markets," ZEW Discussion Papers 19-031, ZEW - Leibniz Centre for European Economic Research.
    11. Jean-Philippe Nicolaï & Jorge Zamorano, 2018. "Windfall Profits Under Pollution Permits and Output-Based Allocation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(4), pages 661-691, April.
    12. Marie Renner, 2014. "Carbon prices and CCS investment: comparative study between the European Union and China," Working Papers 1402, Chaire Economie du climat.
    13. Li, Yan & Feng, Tian-tian & Liu, Li-li & Zhang, Meng-xi, 2023. "How do the electricity market and carbon market interact and achieve integrated development?--A bibliometric-based review," Energy, Elsevier, vol. 265(C).
    14. Tim Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2013. "Assessing the effectiveness of the EU Emissions Trading System," GRI Working Papers 106, Grantham Research Institute on Climate Change and the Environment.
    15. Cotton, Deborah & De Mello, Lurion, 2014. "Econometric analysis of Australian emissions markets and electricity prices," Energy Policy, Elsevier, vol. 74(C), pages 475-485.
    16. Dechezleprêtre, Antoine & Nachtigall, Daniel & Venmans, Frank, 2023. "The joint impact of the European Union emissions trading system on carbon emissions and economic performance," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    17. Wang, M. & Zhou, P., 2022. "A two-step auction-refund allocation rule of CO2 emission permits," Energy Economics, Elsevier, vol. 113(C).
    18. Ma, Ning & Li, Huajiao & Zhang, Jinwei & Han, Xiaodan & Feng, Sida & Arif, Asma, 2021. "The short-term price effects and transmission mechanism of CO2 cost pass-through in China: A partial transmission model," Resources Policy, Elsevier, vol. 70(C).
    19. Harrison Fell, Beat Hintermann, and Herman Vollebergh, 2015. "Carbon content of electricity futures in Phase II of the EU ETS," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    20. Woo, C.K. & Chen, Y. & Olson, A. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Electricity price behavior and carbon trading: New evidence from California," Applied Energy, Elsevier, vol. 204(C), pages 531-543.
    21. Woo, C.K. & Olson, A. & Chen, Y. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Does California's CO2 price affect wholesale electricity prices in the Western U.S.A.?," Energy Policy, Elsevier, vol. 110(C), pages 9-19.

    More about this item

    Keywords

    Emission Price; Pass Through; Dispatch Model; District Heating; Optimization;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:inwedp:dp642016. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/wbokuat.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.