Arbejdsrapport fra Miljøstyrelsen Nr. 23 2007 – Impact of CO2 quota allocation to new entrants in the electricity market

Impact of CO2 quota allocation to new entrants in the electricity market

6 Summary of observations

The model analyses show that allocation to new entrants will have significant impacts in investment pattern in the electricity market.

Investments in new capacity will shift from gas power and renewables to coal power increasing CO₂-emissions by 40 million tonnes/year in the long term (6per cent increase)
Electricity price will decrease – particularly in Germany – because allocation to new entrant will stimulate investments in new power capacity with low short run marginal costs. Consumers will benefit from this whereas existing electricity producers will lose
Investments will move to Germany, because allocation here is more generous than in the Nordic countries
Investments in new capacity will shift from gas power and renewables to coal power increasing CO₂-emissions by 40 million tonnes/year in the long term (6per cent increase)
Electricity price will decrease – particularly in Germany – because allocation to new entrant will stimulate investments in new power capacity with low short run marginal costs. Consumers will benefit from this whereas existing electricity producers will lose
Distortions in the market will lead to a welfare-economic loss of almost €5 bn. (net present value) at a CO₂-price of 20 euro/tonne. This is approximately 25per cent of investments in the electricity sector in the period 2006-2022. Scaled up to the EU-25 level this corresponds to a welfare-economic loss of €20 bn. if we assume that the loss is directly proportional to CO₂-emissions.
Under an emission cap quota prices will rise, and this may enforce the welfare-economic loss reported above significantly.
A higher subsidy for RE is required in order to attain RE-targets