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Impacts of the European Emissions Trading Scheme Directive and Permit Assignment Methods on the Spanish Electricity Sector

Abstract:
This paper assesses the economic impact of the European Emissions Trading Scheme Directive on the Spanish electricity sector. Although some other studies have been carried out before, our approach uses a more detailed model for the Spanish electricity sector, which provides more realistic results both for the expected price of the carbon allowance and for the evolution of electricity prices, installed power and firms� revenues in Spain. Results show that the implementation of the Directive will result in a significant increase of electricity prices, and also, due to the Spanish pricing system, in a large increase in the revenues of generating firms, unless the regulator intervenes. Results also show the different implications of different assignment methods. This is especially relevant currently given that most European countries are approving their national assignment plans for 2005-07 and have to revise them for 2008.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Markets and Prices ; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Environmental Market Design

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D42 - Market Structure, Pricing, and Design: Monopoly
Q54 - Climate; Natural Disasters and Their Management; Global Warming
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

Keywords: Emissions trading, electricity market, Spain, ETS, assignment plans

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No1-5


Published in Volume 27, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.