A dynamic model to optimize municipal electric power systems by considering carbon emission trading under uncertainty

Greenhouse gas emission trading schemes: a new tool for the environmental regulator's kit

This paper discusses the opportunities that exist for reducing greenhouse gases (GHG) emissions by switching from coal to gas-fired units in electricity generation, ‘forced’ by the European Union Greenhouse Gas Emission Trading Scheme (EU ETS) price level of CO2. It attempts to find efficient GHG cost profiles leading to a reasonable GHG emission reduction. In a methodological demonstration case (an electricity generation system consisting of two coal and two gas-fired power plants), we demonstrate how a GHG emission cost can lead to a certain switch of power plants with an accompanying GHG emission reduction. This GHG emission cost is dependent on the load level. The switching point method is applied to an electricity generation system similar to the Belgian one. It is found that the greatest opportunities for GHG emission reductions are situated in the summer season. By switching only the coal-fired units with the combined cycle (CC) gas-fired units, a significant GHG emission reduction is possible at a modest cost. With the simulation tool E-Simulate, the effect of a GHG emission cost in the summer season is investigated. A potential GHG emission reduction of 9.5% in relation to the case where there is no cost linked to GHG emission is possible at a relative low cost. When implementing a GHG cost in winter season, a smaller GHG reduction occurs while costs are higher. Copyright © 2006 John Wiley & Sons, Ltd.

Carbon Trading: Who Gets What, When, and How?

Simulating greenhouse gas (GHG) allowance cost and GHG emission reduction in Western Europe

Carbon pricing is about the explicit pricing of greenhouse gas (GHG) emissions, of which carbon dioxide is the most important. GHG emissions, which are normally measured in tonnes of carbon dioxide equivalent units, are responsible for global warming and hence the greatest environmental externality of our age. Carbon pricing is a mechanism for making society account for the external damage caused by carbon emissions in economic decision making. There are two main ways of pricing carbon dioxide emissions, either via a carbon tax or via the introduction of an emissions trading scheme whereby those emitting carbon into the atmosphere are required to surrender permits which reflect the quantity of emissions they are responsible for. These emission permits are tradeable and hence command a price and, in some respects, operate in a similar way to a carbon tax. Thus, we will discuss both carbon pricing and emissions trading, as the literature on both is closely related. Emissions trading exists for certain other pollutants (such as sulphur dioxide) and we will discuss some of the literature related to this. However, most of the literature on emissions trading relates to carbon dioxide emissions, as these are by far the most valuable traded emissions globally. The literature on carbon pricing and emissions trading is wide ranging and constantly being updated with new analyses. Much of the literature is written by economists who are seeking to apply market-based approaches to the solution of environmental problems. The article starts by looking at the general context in which carbon pricing and emissions trading sits before discussing introductory texts which relate to the subject and going on to introduce the relevant classic literature in environmental economics. It then proceeds to more applied literature, beginning with discussions of early examples of emissions trading and carbon taxation, before continuing to studies of the impact of carbon pricing and emissions trading and those which explain the nature of the schemes we observe. The article continues with literature which looks at the Europe Union Emissions Trading Scheme (EU ETS) for GHGs and other important carbon pricing schemes. It then moves on to the literature on the prospects for a global carbon price, on interactions with other climate policies, on distributional concerns about the imposition of a price on carbon. Finally, it concludes with an introduction to relevant official publications and sources of data on carbon emissions and carbon prices.

In the following decades there will be a fundamental structural change in the European power supply system. This structural change is forced by several factors, e.g. the European Union Greenhouse Gas Emission Trading Scheme, the strategic goal for the European Union of a more sustainable development, energy policy targets to double the share of renewable ener-gies, the phase out or moratoria of the nuclear industry in some European Union member states, and the need of more than 200 GW of new power plant capacities in EU-15. The struc-tural change has to be embedded into an economic, social and ecological framework. Within this framework, there is a variety of possible options to create a future power supply which fulfils the multiple criteria. Generally, different technologies can be chosen which all have their own advantages and disadvantages. It is a challenging decision-making process because fossil-fired power plants tend to be economically advantageous and ecologically disadvanta-geous whereas renewable energy systems tend to be ecologically advantageous and economi-cally disadvantageous. This study gives a comparison of the estimated external costs (environmental aspects) and internal costs (economic aspects) of different power generation technologies in the year 2010 in order to support the decision-making process of future power plant investments in the framework of a sustainable development. A life cycle analysis gives considerable life cycle data for photovoltaic systems, wind turbines, fuel cells, bio-fuelled combined heat and power plants, biomass, water, solar thermal, geothermal, coal-fired, lignite-fired and natural gas-fired power plants as well as nuclear power plants. This database is used for the estimation of external costs which is based on updated factors of damage and avoidance costs for selected emissions. The damage factors are calculated with the software tool EcoSense following the impact pathway approach. Global warming and discounting are considered to be the hot spots in the external costs discussion. An avoidance costs approach is applied which is assumed to fulfil sustainability criteria. The comparison of the external costs of the technologies analysed shows that external costs of power generation technologies using renewable energies and nuclear power plants are in the range of 0.03-3.79 €-Cent/kWhel whereas the external costs of power generation technologies using organic fossil fuels are in the range of 3.37-27.98 €-Cent/kWhel. However, the comparison of the internal costs shows that fossil-fuelled power plants have the lowest internal costs compared to the other technologies analysed. This trade-off between external and internal costs requires a comparison of the social costs which are the sum of internal and external costs. The comparison of the social costs shows five social cost clusters for the ana-lysed technologies for the year 2010. Nuclear power plants have social costs of less than 10 €-Cent/kWhel. Wind turbines and river power plants have slightly higher social costs of 10-15 €-Cent/kWhel. Biomass power plants, bio-fuelled combined heat and power plants, solar ther-mal power plants, geothermal power plants and natural gas-fired power plants have social costs in the range of 15-20 €-Cent/kWhel. Photovoltaic systems in Spain, fuel cells, coal-fired power plants and lignite-fired power plants have social costs in the range of 20-35 €-Cent/kWhel. The highest social costs are caused by Photovoltaic systems in Germany with more than 35 €-Cent/kWhel.

This paper considers a carbon emission cap and trade market, where the carbon emission cap for each entity (either government or firm) is allocated first and then the carbon trading price is decided interdependently in the carbon trading market among the non-cooperative entities which make their production decision. We assume that there are n entities emitting carbon during the production process. After allocating the carbon (emission) cap for each participating entity in the carbon cap and trade market, each participant makes a production decision using the Newsvendor model given carbon trading price determined in the carbon trading market and trades some amount of its carbon emission, if its carbon emission is below or above its own carbon cap. Here, the carbon trading price depends on how carbon caps over the entities are allocated, since the carbon trading price is determined through the carbon (emission) trading market, which considers total amount of carbon emission being equal to total carbon caps over entities and some fraction of total carbon emission should be from each entity participating in the carbon cap and trade market. Thus, we can see the interdependency among the production decision, carbon cap and carbon trading price. We model this as a non-cooperative Stackelberg game in which carbon cap for each entity is allocated in the first stage and each entity’s production quantity is decided in the second stage considering the carbon trading price determined in the carbon trading market. First, we show the monotonic property of the carbon trading price and each entity’s production over the carbon cap allocation. In addition, we show that there exists an optimality condition for the carbon cap allocation. Using this optimality condition, we provide various results for carbon cap and trade market.

This paper explores how optimizing vessel speeds can help reduce carbon emissions in the maritime industry. Focusing on liner shipping routes between China and Europe, it examines how carbon pricing mechanisms, including carbon taxes and emissions trading under the European Union Emissions Trading Scheme (EU ETS), impact operational costs and emissions reduction. With the use of advanced optimization methods, such as the Non-dominated Sorting Genetic Algorithm-II (NSGA-II) and the Technique for Order of Preference by Similarity to an Ideal Solution (TOPSIS), this research explores the balance between adjusting vessel speeds and minimizing emissions. The findings show that shipping companies on the China–Europe route can reduce the financial strain of carbon pricing by carefully managing speeds and voyage times. This study compares two scenarios of carbon tax policy and carbon trading rights in terms of voyage costs and carbon emissions. The results of this comparison based on the given parameters indicate a reduction of 1124 tons of carbon emissions with the carbon tax policy scenario, while the carbon trading rights scenario allows for more voyages yearly (5.24 vs. 5.30). This demonstrates one policy being more economical, while the other is also more environmentally efficient. These insights support the development of strategies that align environmental goals with economic priorities, paving the way for more sustainable maritime operations. The study introduces its objectives and reviews relevant literature by presenting a detailed methodology, incorporating emissions modeling with clearly defined parameters. The analysis presents results that undergo sensitivity testing and limitations using MATLAB (R2022a version). The study concludes by discussing policy implications and recommendations for future research and practical advancement

The Problem of Social Cost

Blockchain solutions for carbon markets are nearing maturity

This chapter, from a monograph on climate change and European emissions trading, considers some lessons from the initial greenhouse gas emissions trading scheme (ETS), focusing on preliminary experiences with ex post adjustments of allocated rights within the initial framework of the European Union (EU) ETS. The authors hope to provide a starting point for a systematic analysis of possible ex post interventions within ETSs. Topics include the current legislative framework of the EU Greenhouse Gas Emissions Trading Scheme; examples derived from the implementing legislation in The Netherlands, Germany, and Belgium; and an analysis of relevant case law from both the national courts and the Court of First Instance. The authors conclude that one lesson sows that the legislative framework for dealing with adjustments has a highly technical-administrative character and is not well suited to cases occurring in practice. A second lesson reminds policy makers not to overlook the possibility of ex post adjustments being used to correct any perverse consequences of allocation within a cap-and-trade scheme. A final note considers a general lesson in theory: there is no systematic analysis of different forms of governmental intervention within the available models of the emissions trading instrument.

What explains the choice of corporate political strategy in environmental politics? Drawing on recent models of actor strategy formation in political economy, this article argues that basic material interests of firms are translated into strategies in the context of institutional environments. I advance a typological model that posits how distributional effects—positive versus negative—and perceived regulatory pressure—low versus high—interact in leading firms to adopt one of four ideal-type strategies: opposition, hedging, support, and non-participation. This article examines the model through the case of corporate strategies in the making of the European Union’s Emission Trading Scheme. The article contributes to theory-building on business strategy in environmental politics by offering a probabilistic explanatory model, and it flags hedging strategies as an increasingly prevalent form of business behavior.

This book chapter focuses on the EU greenhouse gas emissions trading scheme. The core rule of emissions trading is that industries need to cover their emissions with tradable emission rights. The need to cover emissions with a tradable right gives a financial incentive to firms to choose for the reduction of emissions, of course related to the market price of the tradable right. This price-incentive at the same time urges governments to put in place a sound enforcement approach. The chapter discusses how the EU GHG emissions trading programme deals with the fact that compliance by the covered industry must be ensured. The enforcement package of the EU ETS is widely harmonized, but it is clear that the real actions need to be taken primarily within the Member States. Member States have to fulfil an important role in ensuring the environmental integrity of the ETS. They need to implement the ET Directive and to control and to enforce industry where necessary. The active role of Member States – for instance, with setting up enforcement strategies – is not only important for the environmental effectiveness of the scheme, but also for ensuring as much as possible the competition concerns of the covered industry.

This book chapter focuses on the EU greenhouse gas emissions trading scheme. The core rule of emissions trading is that industries need to cover their emissions with tradable emission rights. The need to cover emissions with a tradable right gives a financial incentive to firms to choose for the reduction of emissions, of course related to the market price of the tradable right. This price-incentive at the same time urges governments to put in place a sound enforcement approach. The chapter discusses how the EU GHG emissions trading programme deals with the fact that compliance by the covered industry must be ensured. The enforcement package of the EU ETS is widely harmonized, but it is clear that the real actions need to be taken primarily within the Member States. Member States have to fulfil an important role in ensuring the environmental integrity of the ETS. They need to implement the ET Directive and to control and to enforce industry where necessary. The active role of Member States – for instance, with setting up enforcement strategies – is not only important for the environmental effectiveness of the scheme, but also for ensuring as much as possible the competition concerns of the covered industry.

We assess five proposals for the future of the EU greenhouse gas Emission Trading Scheme (ETS): pure grandfathering allocation of emission allowances (GF), output-based allocation (OB), auctioning (AU), auctioning with border adjustments (AU-BA), and finally output-based allocation in sectors exposed to international competition combined with auctioning in electricity generation (OB-AU). We look at the impact on production, trade, CO2 leakage and welfare. We use a partial equilibrium model of the EU 27 featuring three sectors covered by the EU ETS – cement, steel and electricity – plus the aluminium sector, which is indirectly impacted through a rise in electricity price. The leakage ratio, i.e. the increase in emissions abroad over the decrease in EU emissions, ranges from around 8% under GF and AU to -2% under AU-BA and varies greatly among sectors. Concerning the overall economic cost, OB appears to be the least efficient policy, even when taking into account its ability to prevent CO2 leakage. On the other hand, this policy minimises production losses and wealth transfers among stakeholders, which is likely to soften oppositions. GF and AU are the most efficient policies from an EU perspective, even when leakage is accounted for. From a world welfare perspective and whatever the emission reduction, AU-BA is the least costly policy, while OB-AU, AU and GF entail similar costs.