We focus on the impact of EUAs to reduce emissions on the expected profit of an electricity producer. We show that grandfathering of EUAs introduces significant distortion in the system. It turns out that a producer can identify a threshold price of EUAs above which it is economically preferable to reduce production and sell the unused certificates. An empirical application (to an italian and german producers) shows that given the historical quotas of EUAs freely distributed (about 92%), EU ETS has represented probably more a gift to the owners of gas and coal plants, than an incentive to switch their plants to renewables.
Stefani, S., Felletti, D., Falbo, P. (2011). Free EUAs and fuel switching (good news: Santa Claus brought you carbon) [Working paper del dipartimento].
Free EUAs and fuel switching (good news: Santa Claus brought you carbon)
STEFANI, SILVANA;FELLETTI, DANIELE;
2011
Abstract
We focus on the impact of EUAs to reduce emissions on the expected profit of an electricity producer. We show that grandfathering of EUAs introduces significant distortion in the system. It turns out that a producer can identify a threshold price of EUAs above which it is economically preferable to reduce production and sell the unused certificates. An empirical application (to an italian and german producers) shows that given the historical quotas of EUAs freely distributed (about 92%), EU ETS has represented probably more a gift to the owners of gas and coal plants, than an incentive to switch their plants to renewables.
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