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Did the EU ETS Make a Difference? An Empirical Assessment Using Lithuanian Firm-Level Data

Jurate Jaraite-Kažukauske and Corrado Di Maria

Year: 2016
Volume: Volume 37
Number: Number 1
DOI: 10.5547/01956574.37.2.jjar
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Abstract:
We use a panel dataset of about 5,000 Lithuanian firms between 2003 and 2010, to assess the impact of the EU ETS on the environmental and economic performance of participating firms. Using a matching methodology, we are able to estimate the causal impact of EU ETS participation on CO2 emissions, CO2 intensity, investment behaviour and profitability of participating firms. Our results show that ETS participation did not lead to a reduction in CO2 emissions, while we identify a slight improvement in CO2 intensity. ETS participants are shown to have retired part of their less efficient capital stock, and to have made modest additional investments from 2010. We also show that the EU ETS did not represent a drag on the profitability of participating firms.



Renewables, Allowances Markets, and Capacity Expansion in Energy-Only Markets

Paolo Falbo, Cristian Pelizzari, and Luca Taschini

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.pfal
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Abstract:
We investigate the combined effect of an Emissions Trading System (ETS) and renewable energy sources on investments in electricity capacity in energy-only markets. We study the long-term capacity expansion decision in fossil fuel and renewable technologies when electricity demand is uncertain. We model a relevant tradeoff: a higher share of renewable production can be priced at the higher marginal cost of fossil fuel production, yet the likelihood of achieving higher profits is reduced because more electricity demand is met by cheaper renewable production. We illustrate our theoretical results comparing the optimal solutions under a business-as-usual scenario and under an ETS scenario. This illustration shows under which limiting market settings a monopolist prefers to withhold investments in renewable energy sources, highlighting the potential distortionary effect introduced via an ETS. Our conclusions remain unaltered under varying key modelling assumptions.





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