An impact assessment of electricity and emission allowances pricing in optimised expansion planning of power sector portfolios

The present work concerns a systematic investigation of power sector portfolios through discrete scenarios of electricity and CO₂ allowance prices. The analysis is performed for different prices, from regulated to completely deregulated markets, thus representing different electricity market policies. The modelling approach is based on a stochastic programming algorithm without recourse, used for the optimisation of power sector economics under multiple uncertainties. A sequential quadratic programming routine is applied for the entire investigation period whilst the time-dependent objective function is subject to various social and production constraints, usually confronted in power sectors. The analysis indicated the optimal capacity additions that should be annually ordered from each competitive technology in order to substantially improve both the economy and the sustainability of the system. It is confirmed that higher electricity prices lead to higher financial yields of power production, irrespective of the CO₂ allowance price level. Moreover, by following the proposed licensing planning, a medium-term reduction of CO₂ emissions per MW h by 30% might be possible. Interestingly, the combination of electricity prices subsidisation with high CO₂ allowance prices may provide favourable conditions for investors willing to engage on renewable energy markets.     

Quantifying CO2 abatement costs in the power sector

CO₂ cap-and-trade mechanisms and CO₂ emission taxes are becoming increasingly widespread. To assess the impact of a CO₂ price, marginal abatement cost curves (MACCs) are a commonly used tool by policy makers, providing a direct graphical link between a CO₂ price and the expected abatement. However, such MACCs can suffer from issues related to robustness and granularity. This paper focuses on the relation between a CO₂ emission cost and CO₂ emission reductions in the power sector. The authors present a new methodology that improves the understanding of the relation between a CO₂ cost and CO₂ abatement. The methodology is based on the insight that CO₂ emissions in the power sector are driven by the composition of the conventional power portfolio, the residual load and the generation costs of the conventional units. The methodology addresses both the robustness issue and the granularity issue related to MACCs. The methodology is based on a bottom-up approach, starting from engineering knowledge of the power sector. It offers policy makers a new tool to assess CO₂ abatement options. The methodology is applied to the Central Western European power system and illustrates possible interaction effects between, e.g., fuel switching and renewables deployment.     

Structural decomposition analysis of energy-related CO<Subscript>2</Subscript> emissions in China from 1997 to 2010

The energy-related CO₂ emissions in China have increased dramatically from 3384 to 8333?×?10⁶ t during the last decade. To interpret these drastic changes, we undertake a structural decomposition analysis to decompose the changes in CO₂ emissions from 1997 to 2010 into the following six driving forces: emission coefficient, energy intensity, Leontief, sectoral structure, demand allocation (the shares of consumption, investments, and exports in final demand), and final demand effects. The results show that declines in energy intensity had a decrease impact on CO₂ emissions during the studied period. Changes in the relative importance of intermediate production in total output (the Leontief effect) contributed to decrease CO₂ emissions in the 2000–2002 period and to increase emissions in the other periods. The most important driver behind the steady increase in CO₂ emissions is the large increase in final demand. A further analysis at the sectoral level revealed differences and fluctuations between sectors. Energy intensity fell most strongly in the electric power sector and the coking, gas, and petroleum production sector (two energy-intensive sectors). The shift toward exports and investment increased CO₂ emissions (demand allocation effect). Part of the increases in CO₂ emissions thus stem from production activities for consumption activities elsewhere.     

Implications of a US electricity standard for final energy demand

This paper analyzes the emissions impact of an emissions intensity standard (metric tons of CO₂ per MWh of electricity) for the US power sector on US final energy demand — i.e. the manufacturing, residential, commercial, and transportation sectors. An emissions intensity standard, although geared towards the power sector, will have implications for these other sectors of the economy through its effect on economy-wide energy prices. Using a hybrid energy-economy simulation model (CIMS), we find the effect on aggregate emissions from final demand to mostly be small. However, after disaggregating final demand, we find significant changes in CO₂e emissions for several of sub-sectors. Given that emissions reductions in final energy demand are needed alongside power sector reductions for the US to achieve deep emissions cuts, our findings provide needed insight as to whether these eventual reductions will be helped or hindered by a US electricity standard.     

The economic and emissions benefits of engineered wood products in a low-carbon future

There has been rapid growth in the use of engineered wood products in the construction sector in recent decades. We evaluate the economy-wide impacts on CO₂ emissions from fossil energy use of replacing carbon-intensive construction inputs, such as steel and cement, with lumber products in the US under an emissions constraint. We find that the ability to substitute lumber-based building materials increases production from the lumber and forestry sectors and decreases production from carbon-intensive sectors such as cement. Under a carbon cap-and-trade policy, the ability to substitute lumber products lowers the carbon price and the GDP cost of meeting the carbon cap, with more overall emissions abatement in the construction industry. We briefly review the broader impact of forest harvest on carbon levels in forests, critical to determining the full life cycle impacts of greater lumber use, but do not add anything new to this literature.     

Does a regional greenhouse gas policy make sense? A case study of carbon leakage and emissions spillover

The Regional Greenhouse Gas Initiative (RGGI) is a state-level effort by ten northeast states in the U.S. to control CO₂ emissions from the electric sector. The approach adopted by RGGI is a regional cap-and-trade program, which sets a maximal annual amount of regional CO₂ emissions that can be emitted from the electric sector. However, incoherence of the geographic scope of the regional electricity market is expected to produce two undesirable consequences: CO₂ leakage and NO_x and SO₂ emissions spillover. This paper addresses these two issues using transmission-constrained electricity market models. The results show that although larger CO₂ leakage is associated with higher allowance prices, it is negatively related to CO₂ prices if measured in percentage terms. On the other hand, SO₂ and NO_x emissions spillover increase in commensurate with CO₂ allowance prices. Demand elasticity attenuates the effect of emissions trading on leakage and emissions spillover. This highlights the difficulties of designing a regional or local climate policy.     

China's transportation energy consumption and CO2 emissions from a global perspective

Rapidly growing energy demand from China's transportation sector in the last two decades have raised concerns over national energy security, local air pollution, and carbon dioxide (CO₂) emissions, and there is broad consensus that China's transportation sector will continue to grow in the coming decades. This paper explores the future development of China's transportation sector in terms of service demands, final energy consumption, and CO₂ emissions, and their interactions with global climate policy. This study develops a detailed China transportation energy model that is nested in an integrated assessment model—Global Change Assessment Model (GCAM)—to evaluate the long-term energy consumption and CO₂ emissions of China's transportation sector from a global perspective. The analysis suggests that, without major policy intervention, future transportation energy consumption and CO₂ emissions will continue to rapidly increase and the transportation sector will remain heavily reliant on fossil fuels. Although carbon price policies may significantly reduce the sector's energy consumption and CO₂ emissions, the associated changes in service demands and modal split will be modest, particularly in the passenger transport sector. The analysis also suggests that it is more difficult to decarbonize the transportation sector than other sectors of the economy, primarily owing to its heavy reliance on petroleum products.     

Modelling the UK residential energy sector under long-term decarbonisation scenarios: Comparison between energy systems and sectoral modelling approaches

The UK government has set a groundbreaking target of a 60% reduction in carbon dioxide (CO₂) emissions by 2050. Scenario and modelling assessment of this stringent target consistently finds that all sectors need to contribute to emissions reductions. The UK residential sector accounts for around 30% of the total final energy use and more than one-quarter of CO₂ emissions. This paper focuses on modelling of the residential sector in a system wide energy–economy models (UK MARKAL) and key UK sectoral housing stock models. The UK residential energy demand and CO₂ emission from the both approaches are compared. In an energy system with 60% economy-wide CO₂ reductions, the residential sector plays a commensurate role. Energy systems analysis finds this reduction is primarily driven by energy systems interactions notably decarbonisation of the power sector combined with increased appliance efficiency. The stock models find alternate decarbonisation pathways based on assumptions related to the future building stock and behavioural changes. The paper concludes with a discussion on the assumptions and drivers of emission reductions in different models of the residential energy sector.     

Impact of the economic recession on the European power sector’s CO2 emissions

This paper investigates the impact of the economic recession on CO₂ emissions in the European power sector, during the years 2008 and 2009. Three main determinants of the power sector’s emissions are identified: the demand for electricity, the CO₂ price, and fuel prices. A counterfactual scenario has been set up for each of these, i.e., what these parameters would have been if not affected by the recession. A simulation model of the European power sector is then employed, comparing a historical reference simulation (taking the parameters as actually occurred) with the counterfactual scenarios. The lower electricity demand (due to the recession) is shown to have by far the largest impact, accounting for an emission reduction of about 175 Mton. The lower CO₂ price (due to the recession) resulted in an increase in emissions by about 30 Mton. The impact of fuel prices is more difficult to retrieve; an indicative reduction of about 17 Mton is obtained, mainly as a consequence of the low gas prices in 2009. The simulated combined impact of the parameters results in an emission reduction of about 150 Mton in the European power sector over the years 2008 and 2009 as a consequence of the recession.     

Evaluation of lifecycle CO2 emissions from the Japanese electric power sector in the 21st century under various nuclear scenarios

The status and prospects of the development of Japanese nuclear power are controversial and uncertain. Many deem that nuclear power can play key roles in both supplying energy and abating CO₂ emissions; however, due to severe nuclear accidents, public acceptance of nuclear power in Japan has not been fully obtained. Moreover, deregulation and liberalization of the electricity market impose pressure on large Japanese electric power companies with regard to both the operation of nuclear power plants and the development of the nuclear fuel cycle. Long-term Japanese CO₂ reduction strategies up to 2100 are of environmental concern and are socially demanded under the circumstances described above. Taking these factors into account, we set the following two objectives for this study. One is to estimate lifecycle CO₂ (LCCO₂) emissions from Japanese nuclear power, and the other is to evaluate CO₂ emissions from the Japanese electric power sector in the 21st century by quantifying the relationship between LCCO₂ emissions and scenarios for the adoption of nuclear power. In the pursuit of the above objectives, we first create four scenarios of Japanese adoption of nuclear power, that range from nuclear power promotion to phase-out. Next, we formulate four scenarios describing the mix of the total electricity supply in Japan till the year 2100 corresponding to each of these nuclear power scenarios. CO₂ emissions from the electric power sector in Japan till the year 2100 are estimated by summing those generated by each respective electric power technology and LCCO₂ emission intensity. The LCCO₂ emission intensity of nuclear power for both light water reactors (LWR) and fast breeder reactors (FBR) includes the uranium fuel production chain, facility construction/operation/decommission, and spent fuel processing/disposal. From our investigations, we conclude that the promotion of nuclear power is clearly a strong option for reducing CO₂ emissions by the electric power sector. The introduction of FBR has the effect of further reducing CO₂ emissions in the nuclear power sector. Meeting energy demand and reducing CO₂ emissions while phasing out nuclear power appears challenging given its importance in the Japanese energy supply.     

What explain the short-term dynamics of the prices of CO2 emissions?

Using a Bayesian Structural VAR (BSVAR), this paper analyzes the short-term dynamics of the prices of CO₂ emissions in response to changes in the prices of oil, coal, natural gas and electricity. The results show that: (i) a positive shock to the crude oil prices has an initial positive effect on the CO₂ allowance prices, which later becomes negative; (ii) an unexpected increase in the natural gas prices reduces the price of CO₂ emissions; (iii) a positive shock to the prices of the fuel of choice, coal, has virtually no significant impact on the CO₂ prices; (iv) there is a clear positive effect of the coal prices on the CO₂ allowance prices when the electricity prices are excluded from the BSVAR system; and (v) a positive shock to the electricity prices has a negative impact on the price of the CO₂ allowances. We also find that the energy price shocks have a persistent impact on the CO₂ allowance prices, with the largest effect occurring 6 months after a shock strikes. The effect is particularly strong in the case of the shocks to the natural gas and crude oil prices. Finally, the empirical findings suggest an important degree of substitution between the three primary sources of energy (i.e., crude oil, natural gas and coal), particularly when electricity prices are excluded from the BSVAR system.     

Environmental impact assessment of green energy systems for power supply of electric vehicle charging station

The Electric Vehicle (EV) as a clean alternative to Classic Vehicle that use fossil fuels is promoted as an immediate solution to improve the quality parameters of the environment related to the transport sector. The transition to clean electrified mobility must be considered from the sustainability spectrum, and the planning of a strategy related to the implementation of electric vehicles implies, from the beginning, providing clean energy conditions to go toward a green-to-green paradigm. It should be noted that the successful implementation of the “green electro mobility” concept depends heavily on the green energy supply solutions of green electric vehicle, so Electric Vehicle Charging Stations (EV-CS) should be powered by electricity generation systems based on green resources. This research article has as main objective the environmental impact assessment from the perspective of CO₂ emissions embedded in green stand-alone energy systems and the estimation of the environmental benefits of their implementation in the power supply of EV-CS from the perspective of avoided CO₂ emissions compared to the classic electricity supply grid. The results indicate that the green energy systems represent feasible solutions for the independent energy support of electric vehicle charging stations, being able to supply electricity based on on-site available 100% alternative energy sources. Related to 1 kWh of electricity, the CO₂ emissions embedded in these systems represent on average 11.40% of the CO₂ emissions of the electricity supplied through the grid at European level and on average 7.10% of the CO₂ emissions of the electricity supplied through the grid worldwide. Results also show that the average price of 1kWh of electricity generated by the analyzed systems is 4.3 times higher than the average unit price of the European Union grid energy, but this indicator must be correlated with the kgCO₂/kWh cost savings compared to the electricity production from classic power plants.     

Adjusting productivity measures for CO2 emissions control: Evidence from the provincial thermal power sector in China

We examine productivity changes by the types of environmental regulations used to control CO₂ emissions in the provincial, thermal power sector of China from 2009 to 2016. We derive a Törnqvist-type productivity index in which CO₂ emissions are undesirable outputs. The shadow price of CO₂, required for calculating the index, is estimated based on the duality between a revenue and a directional output distance function. Productivity changes are measured using both estimated shadow prices and the actual trading prices of CO₂ in six pilot emissions trading systems. We find that productivity measurement is highly dependent on the choice of CO₂ prices. We also investigate the impact of emission intensity and emissions per se on productivity measurement. We show that productivity measurement depends on the choice of environmental standard.     

Modeling of current and future energyintensity and greenhouse gas emissions ofthe Lebanese industrial sector: assessmentof mitigation options

Greenhouse gas emissions in Lebanon mainly come from energy activities, which are responsible for 85% of all CO₂ emissions. The CO₂ emissions from energy use in manufacturing industries and construction represent 24% of the total emissions of the energy sector. Lebanese manufacturers' accounted for 39.15 million gigajoules of fuel consumption for heat and power generation in 1994, including both fuel used directly and fuel burned remotely to generate electricity used in the sector. In addition to being processed by combustion, CO₂ is generated in calcining of carbonates in the manufacture of cement, iron and glass. Electricity, the most expensive form of energy, represented 25.87% of all fuel used for heat and power. Residual fuel oil and diesel, which are used mainly in direct combustion processes, represent 26.85 and 26.55% of all energy use by industry, respectively. Scenarios for future energy use and CO₂ emissions are developed for the industrial sector in Lebanon. The development of the baseline scenario relied on available data on major plants' outputs, and on reported amounts of fuels used by the industrial sector as a whole. Energy use in industry and the corresponding greenhouse gas (GHG) emissions for Lebanon are projected in baseline scenarios that reflect technologies, activities and practices that are likely to evolve from the base year 1994 to year 2040. Mitigation work targets a 15% of CO₂ emissions from the baseline scenario by year 2005 and a 20–30% reduction of CO₂ emissions by year 2040. The mitigation options selected for analysis are screened on the basis of GHG emissions and expert judgement on the viability of their wide-scale implementation and economic benefits. Using macroeconomic assessment and energy price assumptions, the final estimates of potential GHG emissions and reduction costs of various mitigation scenarios are calculated. The results show that the use of efficient electric motors, efficient boilers and furnaces with fuel switching from fuel oil to natural gas has the largest impact on GHG emissions at a levelized annual cost that ranges from −20 to −5 US$/tonne of CO₂ reduced. The negative costs are indicative of direct savings obtained in energy cost for those mitigation options.     

Role of energy efficiency standards in reducing CO2 emissions in Germany: An assessment with TIMES

Energy efficiency is widely viewed as an important element of energy and environmental policy. Applying the TIMES model, this paper examines the impacts of additional efficiency improvement measures (as prescribed by the ACROPOLIS project) over the baseline, at the level of individual sectors level as well as in a combined implementation, on the German energy system in terms of energy savings, technological development, emissions and costs. Implementing efficiency measures in all sectors together, CO₂ reduction is possible through substitution of conventional gas or oil boilers by condensing gas boilers especially in single family houses, shifting from petrol to diesel vehicles in private transport, increased use of electric vehicles, gas combined cycle power plants and CHP (combined heat and power production) etc. At a sectoral level, the residential sector offers double benefits of CO₂ reduction and cost savings. In the transport sector, on the other hand, CO₂ reduction is the most expensive, using bio-fuels and methanol to achieve the efficiency targets.     

Internalisation of external cost in the power generation sector: Analysis with Global Multi-regional MARKAL model

The Global MARKAL-Model (GMM), a multi-regional “bottom-up” partial equilibrium model of the global energy system with endogenous technological learning, is used to address impacts of internalisation of external costs from power production. This modelling approach imposes additional charges on electricity generation, which reflect the costs of environmental and health damages from local pollutants (SO₂, NO_x) and climate change, wastes, occupational health, risk of accidents, noise and other burdens. Technologies allowing abatement of pollutants emitted from power plants are rapidly introduced into the energy system, for example, desulphurisation, NO_x removal, and CO₂ scrubbers. The modelling results indicate substantial changes in the electricity production system in favour of natural gas combined cycle, nuclear power and renewables induced by internalisation of external costs and also efficiency loss due to the use of scrubbers. Structural changes and fuel switching in the electricity sector result in significant reduction of emissions of both local pollution and CO₂ over the modelled time period. Strong decarbonisation impact of internalising local externalities suggests that ancillary benefits can be expected from policies directly addressing other issues then CO₂ mitigation. Finally, the detailed analysis of the total generation cost of different technologies points out that inclusion of external cost in the price of electricity increases competitiveness of non-fossil generation sources and fossil power plants with emission control.     

Supply- and demand-side effects of power sector planning with CO2 mitigation constraints in a developing country

In this paper, the implications of CO₂ emission mitigation constraints in the power sector planning in Indonesia are examined using a long term integrated resource planning model. An approach is developed to assess the contributions of supply- and demand-side effects to the changes in CO₂, SO₂ and NO_x emissions from the power sector due to constraints on CO₂ emissions. The results show that while both supply- and demand-side effects would act towards the reduction of CO₂, SO₂ and NO_x emissions, the supply-side options would play the dominant role in emission mitigations from the power sector in Indonesia. The CO₂ abatement cost would increase from US$7.8 to US$9.4 per ton of CO₂, while the electricity price would increase by 3.1 to 19.8% if the annual CO₂ emission reduction target is raised from 10 to 25%.     

Rents in the European power sector due to carbon trading

The European Union Emissions Trading Scheme (EU ETS) has imposed a price on the allowances for CO₂ emissions of electricity companies. Integrating this allowance price into the price of electricity earns a rent for companies who have received these allowances for free. During Phase I, 2005–2007, rents corresponding to the aggregate value of allocated allowances amounted to roughly € 13 billion per year. However, due to the specific price-setting mechanism in electricity markets true rents were considerably higher. This is due to the fact that companies also that have not received any allowances gain additional infra-marginal rents to the extent that their variable costs are below the new market price after inclusion of the allowance price. Producers with low carbon emissions and low marginal costs thus also benefit substantially from carbon pricing. This paper develops a methodology to determine the specific interaction of the imposition of such a CO₂ constraint and the price-setting mechanism in the electricity sector under the assumption of marginal cost pricing in a liberalized European electricity market. The article thus provides an empirical estimate of the true total rents of power producers during Phase I of the EU-ETS (2005–2007). The EU ETS generated in Phase I additional rents in excess of € 19 billion per year for electricity producers. These transfers are distributed very unevenly between different electricity producers. In a second step, the paper assesses the impact of switching from free allocation to an auctioning of allowances in 2013. We show that such a switch to auctioning will continue to create additional infra-marginal rents for certain producers and will leave the electricity sector as a whole better off than before the introduction of the EU ETS.     

Assessing the effects of CO2 price caps on electricity investments—A real options analysis

This paper uses real options modeling to assess the impact of different climate change policy instruments on investment, profits and cumulative emissions in the electricity sector. Even though CO₂ price caps or “safety valves” have been suggested as methods to limit uncertainty emanating from fluctuating prices of CO₂ permits that would hurt the industry's profit and thereby also energy security, our analysis shows that price caps set at a too low level are detrimental to the adoption of e.g. modern biomass-fired capacity as a replacement for existing coal-fired power plants. We therefore conduct a series of experiments with different policy scenarios to analyze under which regime emissions are most effectively reduced. With respect to CO₂ price uncertainty, it turns out that even for moderately rising CO₂ prices, fluctuations frequently lead to investment into carbon capture and storage (CCS), while investment is often not triggered in the face of deterministic CO₂ prices.     

The potential for renewable energy in industrial applications

To date, insufficient attention has been paid to the potential of renewable energy resources in industrial applications. Our analysis suggests that up to 21% of final energy demand and feedstock-use in the manufacturing industry sector could be of renewable origin by 2050, a five-fold increase over current levels in absolute terms. This estimate is considerably higher than other recent global scenario studies. In addition, if a 50% share of renewables in power generation is assumed, the share of direct and indirect renewable energy use rises to 31% in 2050. Our analysis further suggests that bioenergy and biofeedstocks can constitute three-quarters of the direct renewables use in this sector by 2050. The remainder is roughly evenly divided between solar heating and heat pumps. The potential for solar cooling is considered to be limited.While low-temperature solar process heat can reach cost-effectiveness today in locations with good insolation, some bioenergy applications will require a CO₂ price even on the longer term. Biomass feedstock for synthetic organic materials will require a CO₂ price up to USD 100/t CO₂, or even more if embodied carbon is not considered properly in CO₂ accounts. Future fossil fuel prices and bioenergy prices in addition to the development of feedstock commodity markets for biomass will be critical. Decision makers are recommended to pay more attention to the potential for renewables in industry. Finally, we propose the development of a detailed technology roadmap to explore this potential further and discuss key issues that need to be elaborated in such a framework.