How marginal is lignite? Two simple approaches to determine price-setting technologies in power markets

Germeshausen, Robert ; Wölfing, Nikolas

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URN: urn:nbn:de:bsz:180-madoc-545203
Document Type: Article
Year of publication: 2020
The title of a journal, publication series: Energy Policy
Volume: 142
Page range: 111482
Place of publication: Amsterdam [u.a.]
Publishing house: Elsevier Science
ISSN: 0301-4215
Publication language: English
Institution: Business School > Stiftungsprofessur für ABWL (Reichelstein 2018-)
Pre-existing license: Creative Commons Attribution 4.0 International (CC BY 4.0)
Subject: 330 Economics
333.7 Natural resources, energy and environment
Abstract: How much carbon is in the price of power? The answer to this question determines many economic consequences of climate policies, i.e. in terms of costs for downstream industries. It requires, however, to first identify the cost impact of carbon pricing on the price-setting entity on the power market. Economic theory tells us that power prices are determined by the cost of the marginal plant. We propose two simple approaches to conclude on marginal technologies in electricity wholesale from public data. Both approaches are complementary, easy to implement, and based upon assumptions which are commonly used in more complex energy system models. We exemplify their use with a policy example on the compensation for indirect emission costs from the EU Emissions Trading Scheme. We find that the current policy design severely overweighs CO2 emissions from lignite power plants in the Central Western Europe power market, which may lead to overcompensation of industrial power users and therefore to a distortion with regard to the policy’s stated goal.

Economic SustainabilitySDG 7: Affordable and Clean Energy

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