Substitution and Technological Change under Carbon Cap and Trade : Lessons from Europe
The use of carbon-intense fuels by the power sector contributes significantly to the greenhouse gas emissions of most countries. For this reason, the sector is often key to initial efforts to regulate emissions. But how long does it take before new...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090608131814 http://hdl.handle.net/10986/4150 |
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okr-10986-4150 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ALLOCATION OF PERMITS APPROACH ATMOSPHERE AVAILABILITY AVERAGE PRICES BIOMASS CARBON CARBON ABATEMENT CARBON CAPTURE CARBON CONTENT CARBON DIOXIDE CARBON DIOXIDE EMISSION CARBON DIOXIDE EMISSIONS CARBON EMISSION CARBON EMISSION FACTOR CARBON EMISSION REDUCTIONS CARBON EMISSIONS CARBON ENERGY CARBON FUELS CARBON INTENSITY CARBON MARKETS CARBON OFFSET CARBON OFFSETS CARBON PATH CARBON PRICE CARBON PRICES CARBON PRICING CEMENT CERTIFIED EMISSION REDUCTIONS CLIMATE CHANGE CLIMATE CHANGE POLICIES CLIMATE POLICY COAL COMBUSTION CONSUMPTION OF PETROLEUM CYCLE GAS DEMAND ELASTICITY DEMAND FOR ELECTRICITY DEMAND FUNCTIONS ELASTICITY OF SUBSTITUTION ELECTRIC POWER ELECTRIC POWER GENERATION ELECTRIC POWER PRODUCTION ELECTRIC POWER SECTOR ELECTRIC UTILITIES ELECTRICITY ELECTRICITY GENERATION ELECTRICITY PRICES ELECTRICITY PRODUCERS ELECTRICITY PRODUCTION EMISSION EMISSION ABATEMENT EMISSION CONTROLS EMISSION FACTOR EMISSION LIMITS EMISSION PERMITS EMISSION REDUCTIONS EMISSION TRADING EMISSIONS INCREASES EMPLOYMENT ENERGY MARKET ENERGY MARKETS ENERGY PRICES ENERGY PRODUCTION ENERGY RESOURCES ENERGY SERVICE ENERGY SOURCES FACTOR PRICES FERROUS METALS FOSSIL FOSSIL ENERGY FOSSIL FUEL FOSSIL FUEL CONSUMPTION FOSSIL FUEL USE FOSSIL FUELS FREE ENERGY FUEL FUEL OIL FUEL PRICE FUEL PRICES FUEL SUBSTITUTION FUEL SWITCHING FUEL USE FUELS GAS TURBINE GAS TURBINE TECHNOLOGY GENERATING CAPACITY GENERATION CAPACITY GEOTHERMAL CAPACITY GEOTHERMAL ENERGY GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS HEAT HEAT RATE HYDROELECTRIC ENERGY HYDROELECTRIC POWER INPUT PRICES INTERNATIONAL ENERGY AGENCY IRREVERSIBLE INVESTMENTS MARGINAL COST OF ELECTRICITY MARGINAL GENERATION MARGINAL GENERATION COST MARKET PRICES MEMBER STATES MONOPOLY NATURAL GAS NATURAL GAS CONSUMPTION NATURAL GAS OUTPUT NATURAL GAS PRICES NATURAL RESOURCES NUCLEAR ELECTRICITY NUCLEAR ENERGY NUCLEAR FUEL NUCLEAR GENERATION NUCLEAR PLANTS NUCLEAR POWER OIL OIL PRICE OIL PRICES OIL REFINERIES PETROLEUM POLLUTION POTENTIAL DEMAND POWER POWER GRID POWER PRODUCERS POWER SECTOR PRICE CHANGES PRICE ELASTICITY PRICES OF FUELS PRICING MODEL PRIMARY ENERGY PRIMARY FUEL PRODUCTION OF ELECTRICITY PURCHASING REDUCTION IN CARBON RENEWABLE ELECTRICITY RENEWABLE ENERGY RENEWABLE ENERGY CAPACITY RENEWABLE ENERGY GENERATION RENEWABLE ENERGY RESOURCES RENEWABLE GENERATION RENEWABLE RESOURCES RENEWABLE SOURCES SALES SPOT PRICES STOCKS SUBSTITUTES SULFUR SULFUR DIOXIDE SURPLUS THERMAL EFFICIENCY WHOLESALE PRICES WIND |
| spellingShingle |
ALLOCATION OF PERMITS APPROACH ATMOSPHERE AVAILABILITY AVERAGE PRICES BIOMASS CARBON CARBON ABATEMENT CARBON CAPTURE CARBON CONTENT CARBON DIOXIDE CARBON DIOXIDE EMISSION CARBON DIOXIDE EMISSIONS CARBON EMISSION CARBON EMISSION FACTOR CARBON EMISSION REDUCTIONS CARBON EMISSIONS CARBON ENERGY CARBON FUELS CARBON INTENSITY CARBON MARKETS CARBON OFFSET CARBON OFFSETS CARBON PATH CARBON PRICE CARBON PRICES CARBON PRICING CEMENT CERTIFIED EMISSION REDUCTIONS CLIMATE CHANGE CLIMATE CHANGE POLICIES CLIMATE POLICY COAL COMBUSTION CONSUMPTION OF PETROLEUM CYCLE GAS DEMAND ELASTICITY DEMAND FOR ELECTRICITY DEMAND FUNCTIONS ELASTICITY OF SUBSTITUTION ELECTRIC POWER ELECTRIC POWER GENERATION ELECTRIC POWER PRODUCTION ELECTRIC POWER SECTOR ELECTRIC UTILITIES ELECTRICITY ELECTRICITY GENERATION ELECTRICITY PRICES ELECTRICITY PRODUCERS ELECTRICITY PRODUCTION EMISSION EMISSION ABATEMENT EMISSION CONTROLS EMISSION FACTOR EMISSION LIMITS EMISSION PERMITS EMISSION REDUCTIONS EMISSION TRADING EMISSIONS INCREASES EMPLOYMENT ENERGY MARKET ENERGY MARKETS ENERGY PRICES ENERGY PRODUCTION ENERGY RESOURCES ENERGY SERVICE ENERGY SOURCES FACTOR PRICES FERROUS METALS FOSSIL FOSSIL ENERGY FOSSIL FUEL FOSSIL FUEL CONSUMPTION FOSSIL FUEL USE FOSSIL FUELS FREE ENERGY FUEL FUEL OIL FUEL PRICE FUEL PRICES FUEL SUBSTITUTION FUEL SWITCHING FUEL USE FUELS GAS TURBINE GAS TURBINE TECHNOLOGY GENERATING CAPACITY GENERATION CAPACITY GEOTHERMAL CAPACITY GEOTHERMAL ENERGY GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS HEAT HEAT RATE HYDROELECTRIC ENERGY HYDROELECTRIC POWER INPUT PRICES INTERNATIONAL ENERGY AGENCY IRREVERSIBLE INVESTMENTS MARGINAL COST OF ELECTRICITY MARGINAL GENERATION MARGINAL GENERATION COST MARKET PRICES MEMBER STATES MONOPOLY NATURAL GAS NATURAL GAS CONSUMPTION NATURAL GAS OUTPUT NATURAL GAS PRICES NATURAL RESOURCES NUCLEAR ELECTRICITY NUCLEAR ENERGY NUCLEAR FUEL NUCLEAR GENERATION NUCLEAR PLANTS NUCLEAR POWER OIL OIL PRICE OIL PRICES OIL REFINERIES PETROLEUM POLLUTION POTENTIAL DEMAND POWER POWER GRID POWER PRODUCERS POWER SECTOR PRICE CHANGES PRICE ELASTICITY PRICES OF FUELS PRICING MODEL PRIMARY ENERGY PRIMARY FUEL PRODUCTION OF ELECTRICITY PURCHASING REDUCTION IN CARBON RENEWABLE ELECTRICITY RENEWABLE ENERGY RENEWABLE ENERGY CAPACITY RENEWABLE ENERGY GENERATION RENEWABLE ENERGY RESOURCES RENEWABLE GENERATION RENEWABLE RESOURCES RENEWABLE SOURCES SALES SPOT PRICES STOCKS SUBSTITUTES SULFUR SULFUR DIOXIDE SURPLUS THERMAL EFFICIENCY WHOLESALE PRICES WIND Considine, Timothy J. Larson, Donald F. Substitution and Technological Change under Carbon Cap and Trade : Lessons from Europe |
| geographic_facet |
Europe and Central Asia Europe and Central Asia |
| relation |
Policy Research working paper ; no. WPS 4957 |
| description |
The use of carbon-intense fuels by the
power sector contributes significantly to the greenhouse gas
emissions of most countries. For this reason, the sector is
often key to initial efforts to regulate emissions. But how
long does it take before new regulatory incentives result in
a switch to less carbon intense fuels? This study examines
fuel switching in electricity production following the
introduction of the European Union s Emissions Trading
System, a cap-and-trade regulatory framework for greenhouse
gas emissions. The empirical analysis examines the demand
for carbon permits, carbon based fuels, and carbon-free
energy for 12 European countries using monthly data on fuel
use, prices, and electricity generation. A short-run
restricted cost function is estimated in which carbon
permits, high-carbon fuels, and low-carbon fuels are
variable inputs, conditional on quasi-fixed carbon-free
energy production from nuclear, hydro, and renewable energy
capacity. The results indicate that prices for permits and
fuels affect the composition of inputs in a statistically
significant way. Even so, the analysis suggests that the
industry s fuel-switching capabilities are limited in the
short run as is the scope for introducing new technologies.
This is because of the dominant role that past irreversible
investments play in determining power-generating capacity.
Moreover, the results suggest that, because the capacity for
fuel substitution is limited, the impact of carbon emission
limits on electricity prices can be significant if fuel
prices increase together with carbon permit prices. The
estimates suggest that for every 10 percent rise in carbon
and fuel prices, the marginal cost of electric power
generation increases by 8 percent in the short run. The
European experience points to the importance of starting
early down a low-carbon path and of policies that introduce
flexibility in how emission reductions are achieved. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Considine, Timothy J. Larson, Donald F. |
| author_facet |
Considine, Timothy J. Larson, Donald F. |
| author_sort |
Considine, Timothy J. |
| title |
Substitution and Technological Change under Carbon Cap and Trade :
Lessons from Europe |
| title_short |
Substitution and Technological Change under Carbon Cap and Trade :
Lessons from Europe |
| title_full |
Substitution and Technological Change under Carbon Cap and Trade :
Lessons from Europe |
| title_fullStr |
Substitution and Technological Change under Carbon Cap and Trade :
Lessons from Europe |
| title_full_unstemmed |
Substitution and Technological Change under Carbon Cap and Trade :
Lessons from Europe |
| title_sort |
substitution and technological change under carbon cap and trade :
lessons from europe |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090608131814 http://hdl.handle.net/10986/4150 |
| _version_ |
1764390158274134016 |
| spelling |
okr-10986-41502021-04-23T14:02:15Z Substitution and Technological Change under Carbon Cap and Trade : Lessons from Europe Considine, Timothy J. Larson, Donald F. ALLOCATION OF PERMITS APPROACH ATMOSPHERE AVAILABILITY AVERAGE PRICES BIOMASS CARBON CARBON ABATEMENT CARBON CAPTURE CARBON CONTENT CARBON DIOXIDE CARBON DIOXIDE EMISSION CARBON DIOXIDE EMISSIONS CARBON EMISSION CARBON EMISSION FACTOR CARBON EMISSION REDUCTIONS CARBON EMISSIONS CARBON ENERGY CARBON FUELS CARBON INTENSITY CARBON MARKETS CARBON OFFSET CARBON OFFSETS CARBON PATH CARBON PRICE CARBON PRICES CARBON PRICING CEMENT CERTIFIED EMISSION REDUCTIONS CLIMATE CHANGE CLIMATE CHANGE POLICIES CLIMATE POLICY COAL COMBUSTION CONSUMPTION OF PETROLEUM CYCLE GAS DEMAND ELASTICITY DEMAND FOR ELECTRICITY DEMAND FUNCTIONS ELASTICITY OF SUBSTITUTION ELECTRIC POWER ELECTRIC POWER GENERATION ELECTRIC POWER PRODUCTION ELECTRIC POWER SECTOR ELECTRIC UTILITIES ELECTRICITY ELECTRICITY GENERATION ELECTRICITY PRICES ELECTRICITY PRODUCERS ELECTRICITY PRODUCTION EMISSION EMISSION ABATEMENT EMISSION CONTROLS EMISSION FACTOR EMISSION LIMITS EMISSION PERMITS EMISSION REDUCTIONS EMISSION TRADING EMISSIONS INCREASES EMPLOYMENT ENERGY MARKET ENERGY MARKETS ENERGY PRICES ENERGY PRODUCTION ENERGY RESOURCES ENERGY SERVICE ENERGY SOURCES FACTOR PRICES FERROUS METALS FOSSIL FOSSIL ENERGY FOSSIL FUEL FOSSIL FUEL CONSUMPTION FOSSIL FUEL USE FOSSIL FUELS FREE ENERGY FUEL FUEL OIL FUEL PRICE FUEL PRICES FUEL SUBSTITUTION FUEL SWITCHING FUEL USE FUELS GAS TURBINE GAS TURBINE TECHNOLOGY GENERATING CAPACITY GENERATION CAPACITY GEOTHERMAL CAPACITY GEOTHERMAL ENERGY GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS HEAT HEAT RATE HYDROELECTRIC ENERGY HYDROELECTRIC POWER INPUT PRICES INTERNATIONAL ENERGY AGENCY IRREVERSIBLE INVESTMENTS MARGINAL COST OF ELECTRICITY MARGINAL GENERATION MARGINAL GENERATION COST MARKET PRICES MEMBER STATES MONOPOLY NATURAL GAS NATURAL GAS CONSUMPTION NATURAL GAS OUTPUT NATURAL GAS PRICES NATURAL RESOURCES NUCLEAR ELECTRICITY NUCLEAR ENERGY NUCLEAR FUEL NUCLEAR GENERATION NUCLEAR PLANTS NUCLEAR POWER OIL OIL PRICE OIL PRICES OIL REFINERIES PETROLEUM POLLUTION POTENTIAL DEMAND POWER POWER GRID POWER PRODUCERS POWER SECTOR PRICE CHANGES PRICE ELASTICITY PRICES OF FUELS PRICING MODEL PRIMARY ENERGY PRIMARY FUEL PRODUCTION OF ELECTRICITY PURCHASING REDUCTION IN CARBON RENEWABLE ELECTRICITY RENEWABLE ENERGY RENEWABLE ENERGY CAPACITY RENEWABLE ENERGY GENERATION RENEWABLE ENERGY RESOURCES RENEWABLE GENERATION RENEWABLE RESOURCES RENEWABLE SOURCES SALES SPOT PRICES STOCKS SUBSTITUTES SULFUR SULFUR DIOXIDE SURPLUS THERMAL EFFICIENCY WHOLESALE PRICES WIND The use of carbon-intense fuels by the power sector contributes significantly to the greenhouse gas emissions of most countries. For this reason, the sector is often key to initial efforts to regulate emissions. But how long does it take before new regulatory incentives result in a switch to less carbon intense fuels? This study examines fuel switching in electricity production following the introduction of the European Union s Emissions Trading System, a cap-and-trade regulatory framework for greenhouse gas emissions. The empirical analysis examines the demand for carbon permits, carbon based fuels, and carbon-free energy for 12 European countries using monthly data on fuel use, prices, and electricity generation. A short-run restricted cost function is estimated in which carbon permits, high-carbon fuels, and low-carbon fuels are variable inputs, conditional on quasi-fixed carbon-free energy production from nuclear, hydro, and renewable energy capacity. The results indicate that prices for permits and fuels affect the composition of inputs in a statistically significant way. Even so, the analysis suggests that the industry s fuel-switching capabilities are limited in the short run as is the scope for introducing new technologies. This is because of the dominant role that past irreversible investments play in determining power-generating capacity. Moreover, the results suggest that, because the capacity for fuel substitution is limited, the impact of carbon emission limits on electricity prices can be significant if fuel prices increase together with carbon permit prices. The estimates suggest that for every 10 percent rise in carbon and fuel prices, the marginal cost of electric power generation increases by 8 percent in the short run. The European experience points to the importance of starting early down a low-carbon path and of policies that introduce flexibility in how emission reductions are achieved. 2012-03-19T19:10:49Z 2012-03-19T19:10:49Z 2009-06-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090608131814 http://hdl.handle.net/10986/4150 English Policy Research working paper ; no. WPS 4957 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper Europe and Central Asia Europe and Central Asia |