Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103124
Authors: 
Hintermann, Beat
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4964
Abstract: 
I estimate the level of emissions cost pass-through to hourly wholesale electricity prices in Germany, based on spot market data. I control for contemporaneous shocks to demand and supply by constructing a detailed supply curve for fossil generation, and intersecting it with residual demand for fossil-based electricity for every hour. Determining the marginal generator allows me to use marginal fuel and carbon costs (rather than prices) as explanatory variables in order to identify the level of cost pass-through directly and with a high level of precision. I find that carbon costs are passed through to electricity prices by at least 84 %, with a central range of 98 %–104 % for different load periods. My results suggest that there is no economic reason for free allowance allocation to the electricity sector, and thus validate the updated allocation rules in Phase 3 of the European Union Emissions Trading Scheme.
Subjects: 
EU ETS
emission trading
air pollution
cost pass-through
electricity
climate change
JEL: 
H23
H32
Q48
Q52
Q53
Q54
Document Type: 
Working Paper

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