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Title:
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The impact of the EU emissions trading scheme on the price of electricity in the Netherlands
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Author(s):
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Published by:
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Publication date:
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ECN
Policy Studies
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1-2-2004
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ECN report number:
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Document type:
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ECN-RX--04-015
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Article (scientific)
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Number of pages:
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13
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Published in: 'Ontwikkeling en Overheid'; Ros, A.P.; H.R.J. Vollebergh(eds.), Sdu Publishers, The Hague, Netherlands, 2003 pages 263-276.
Abstract:
This paper discusses a specific aspect of the proposed EU EmissionsTrading System (EU ETS), i.e. its potential impact on the price of electricity
in the Netherlands and, hence, its potential implications for Dutch
power producers and consumers. It shows that the EU ETS may lead to
a significant increase in the price of electricity in the Netherlands
(and other EU Member States), depending on the marginal costs of emissions
trading (i.e. the price of an emission allowance), the emission factor
of the marginal production technology to generate electricity, and the
extent to which the costs of emissions trading will be passed on to
the end-users of electricity. If, for one reason or another, these costs
will not be passed on to power consumers, it will have an adverse impact
on overall efficiency from both an energy and economic point of view.
On the other hand, if ? as expected ? these costs are indeed passed
on to end-users of electricity, it will benefit power producers (mainly
owing to the economic rent of allocating emission allowances for free),
while it will harm those energy-intensive industries that, in turn,
are not able to pass the higher electricity costs to their customers
(resulting in a loss of economic production and income). To some degree,
these effects can be best avoided by auctioning emission allowances
mandatory throughout the EU ETS and using the auction revenues to reduce
the overall level of taxation and social premiums in order to improve
the overall competitiveness of domestic industries and to (partly) compensate
power consumers for the ET-induced increase in the price of electricity.
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