Price determination in the EU ETS market: Theory and econometric analysis with market fundamentals

/pdf/how-effective-is-carbon-pricing-a-machine-learning-approach-13jo52wg.pdf

How effective is carbon pricing?—A machine learning approach to policy evaluation

Biomass for electricity in the EU-27: Potential demand, CO2 abatements and breakeven prices for co-firing

This paper proposes an estimation methodology for Levy-driven Ornstein–Uhlenbeck processes. The estimation unfolds in two steps, with a least-squares method for a subset of parameters in the first stage, and a constrained maximum likelihood for the remaining diffusion and Levy distribution parameters. We develop this estimation procedure to demonstrate that the class of mean-reverting Levy jump processes provides a better fit of the electricity and $$\hbox {CO}_2$$
 (carbon) market prices. In particular, we describe the dynamics of the fuel-switching price (from coal to gas) when taking into account carbon costs. Several stochastic processes are considered to model the fuel-switching price: (1) the Brownian motion, and (2) Poisson and a panel of Levy jump processes. The results unambiguously point out the need to resort to jump modeling techniques to model satisfactorily the fuel-switching price. The Gaussianity assumption is also clearly rejected in favor of jump models, especially for pure-jump processes such as Levy processes.

Estimation of Lévy-driven Ornstein–Uhlenbeck processes: application to modeling of \hbox {CO}_2 and fuel-switching

This paper investigates the cost of biomass co-firing in European coal power stations.
We propose a tractable and original method, that enables us to get expressions of biomass and CO2 breakeven points for co-firing in different types of coal plants. We call them carbon
switching price and biomass switching price. They correspond to carbon and biomass prices that make coal plants equally attractive under co-firing or classical conditions (i.e. when coal
is the only input). The carbon switching price is the carbon price from which it becomes profitable to include biomass in coal plants (i.e.
if the actual carbon price is higher than the carbon switching price, co-firing is profitable). The biomass switching price is the biomass
price beyond which including b
iomass in coal plants is no longer profitable (i.e.
if the actual biomass price is lower than the biomass switching price, co-firing is profitable). We also run
some sensitivity analyses to investigate the effect of modifying quantity and quality of biomass entering in boilers of coal plants. Results show that the carbon switching price associated with using biomass in lignite plants is always cheaper than that of hard-coal, due to higher lignite price. Additionally, we find that the biomass switching price has higher values with lignite plants. This reflects the greater benefits associated with including biomass in
lignite plants, due to greater coal cost savings with higher lignite price. Results also indicate
that the carbon switching price increases, and the biomass switching price decreases, when the
biomass quality decreases, due to greater losses in conversion efficiency. However, we observe no significant influence when varying the incorporation rate, reflecting the quantity of biomass in coal plants.

Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO 2 breakeven prices

The creation of the EU ETS led to changes in the merit order of the different plants competing on the electricity grid, and in the fuel-switching opportunities in the UK. This country has the greatest potential for CO 2 emissions reduction through fuel-switching within the EU, thanks to its suitable energy mix (39% of coal and 36% of natural gas in 2007). Through the modelling of the UK power system with the E-Simulate model, our central contribution documents that fuel-switching did occur in the UK as a consequence of the EU ETS: 20.1 Mton in 2005, 7.8 Mton in 2006, 0.52 Mton in 2007, and 14.3 Mton in 2008. We assess the relative contribution of different factors (carbon price, fuel prices and load in the power sector) to CO 2 emissions abatement by disentangling the impacts coming from the EU ETS, relative fuel prices variation, and with a ‘switching band’ analysis.

CO2 abatement opportunity in the UK through fuel-switching under the EU ETS (2005–2008): evidence from the E-Simulate model

The creation of the EU ETS led to changes in the merit order of the different plants competing on the electricity grid, and in the fuel-switching opportunities in the UK. This country has the greatest potential for CO2 emissions reduction through fuel-switching within the EU, thanks to its suitable energy mix (39% of coal and 36% of natural gas in 2007). Through the modelling of the UK power system with the E-Simulate model, our central contribution documents that fuel-switching did occur in the UK as a consequence of the EU ETS: 20.1 Mton in 2005, 7.8 Mton in 2006, 0.52 Mton in 2007, and 14.3 Mton in 2008. We assess the relative contribution of different factors (carbon price, fuel prices and load in the power sector) to CO2 emissions abatement by disentangling the impacts coming from the EU ETS, relative fuel prices variation, and with a 'switching band' analysis.

CO2 abatement opportunity in the UK through fuel-switching under the EU ETS (2005-2008): evidence from the E-Simulate model

This paper uses the E-simulate model of electricity generation to estimate how much the stacking order of different technologies changes when a carbon price is introduced. Different coal and gas price scenarios are explored, and some sensitivity analysis is made of the relative market share of coal and gas under various carbon price levels. The objective of the paper is to estimate how much CO2 reduction could happen in the UK through fuel switching (coal to natural gas) for different carbon price levels during Phase II (2008-2012) of the EU ETS. This country is indeed reported to have the greatest potential within the EU thanks to its suitable fuel mix (39% of coal and 36% of gas in 2007). Our results feature that 27 Mton of CO2/year can be abated at carbon prices around e25/ton (essentially through fuel-switching during the summer), 36 Mton of CO2/year can be abated at carbon prices around e40/ton (in that case, the carbon price triggers fuel-switching during the whole year), and that a maximum of 40 Mton of CO2/year can be achieved at high carbon prices (e125/ton). We also provide various scenarios depending on the relative levels of fuel prices.

A counterfactual simulation exercise of CO2 emissions abatement through fuel-switching in the UK (2008-2012)

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CO2 abatement opportunity in the UK through fuel-switching under the EU ETS (2005–2008): evidence from the E-Simulate model

CO2 abatement opportunity in the UK through fuel-switching under the EU ETS (2005-2008): evidence from the E-Simulate model

A counterfactual simulation exercise of CO2 emissions abatement through fuel-switching in the UK (2008-2012)

A counterfactual simulation exercise of CO2 emissions abatement through fuel-switching in the UK (2008-2012)