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The Impact of Climate Policies on the Operation of a Thermal Power Plant

Orvika Rosnes

Year: 2008
Volume: Volume 29
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No2-1
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Abstract:
Climate policy measures aimed at power markets influence the cost structure of producers and price patterns, and are therefore likely to influence the production decision of power plants, even in the short run. When power plants have costs related to starting and stopping, decisions on short-term production are intertemporal, and the conventional �price vs. marginal cost� rule is not sufficient to predict production in thermal power plants. This paper analyzes how the optimal production decision is influenced by climate policies: namely, CO2 trading mechanisms, the expansion of renewables and the interaction between these policies. The main result is that higher power price variation (as a result of increased wind power production) makes the thermal power producer less flexible, but the effect on emissions is ambiguous. A CO2 cost (as a result of an emission trading system) increases the flexibility of the producer and the operation decision resembles the conventional �price vs. marginal cost� rule more. This implies lower emissions. However, when the CO2 price is coupled with higher power price variation, the positive effects may be reversed since the two policies have opposing effects.



When and Under What Conditions Does an Emission Trading Scheme Become Cost Effective?

Hongyan Zhang, Lin Zhang, and Ning Zhang

Year: 2024
Volume: Volume 45
Number: Number 2
DOI: 10.5547/01956574.45.2.hzha
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Abstract:
This paper studies when and under what conditions the actions undertaken by the power plants involved in China's emission trading scheme (ETS) pilot became cost effective. Based on unique plant-level panel data and the difference-in-differences strategy, we identify that an insignificant initial reduction in cost efficiency occurred at the announcement stage for power plants in the pilot provinces; however, the cost efficiency of the pilot plants increased significantly following formal policy implementation. Additionally, the by-stage treatment effects differed across the pilot provinces due to localized market and non-market variations. Localized conditions of higher marketization, stricter policy enforcement, and lower carbon dependence enhanced this positive effect. The synthetic control results confirmed this variation in the policy effects. The carbon trading pilots resulted in improved efficiency in power plants in Shanghai, Guangdong, and Tianjin during the period 2013–2017, with an associated total cost saving of approximately 29.75 million RMB. To enhance the efficacy of the ETS policy, our findings suggest that the design of the policy should consider localized external factors.





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