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Spatial carbon and price spillovers among EU countries on their pathway toward net-zero electricity supply

Published inEnergy economics, vol. 131, 107349
Publication date2024-03
Abstract

This paper introduces a methodology to assess and compare the carbon and price marginal impacts (also known as spillovers) of a country’s generation mix on other countries. The methodology is applied for possible decarbonization pathways from 2018 to 2030 and 2040 for EU countries, considering the foreseen expansion of generation and transmission capacities, as well as nuclear and fossil fuel phase-out. Firstly, the optimal hourly dispatch of power plants is computed. Secondly, the impact of each country on the overall European electricity system is analyzed by removing that respective country from the simulation. Thirdly, each country’s spillovers on prices and CO2 emissions are assessed. On the pathway to a net-zero CO2-emission energy system, the uncoordinated penetration of low-cost renewables among countries enables export opportunities to carbon-intensive electricity generation despite rising prices of EU CO2 allowances. The spillovers, resulting from those exports, cause in the importing country (i) the substitution of clean electricity with electricity stemming out of carbonintensive plants and (ii) a market price decrease. While the former lessens CO2-mitigation strategies, the latter results in a lack of investment in renewable generation due to market prices being insufficient to recover capital costs for new renewables. Redistributing CO2 revenues among countries could be a way to overcome the drawbacks due to spillovers.

eng
Keywords
  • Spillover effects
  • Merit-order effect
  • CO2-mitigation
  • European electricity markets
Citation (ISO format)
ROMANO, Elliot et al. Spatial carbon and price spillovers among EU countries on their pathway toward net-zero electricity supply. In: Energy economics, 2024, vol. 131, p. 107349. doi: 10.1016/j.eneco.2024.107349
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ISSN of the journal0140-9883
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