An economic and ex-post analysis of the effects of carbon pricing on the European electricity sector.

Summary This thesis evaluates the interactions between the European CO2 trading scheme and the electricity markets over the period 2005-2012. It uses econometric and modelling tools to explain the observed market developments and to draw lessons for future policies. The ex-post analysis of the introduction of a carbon price on the European electricity markets reveals three types of interactions: on the formation of electricity prices . on techno-economic choices and CO2 emissions . on the formation of electricity rents. Empirical estimates show that the degree of carbon price pass-through to electricity prices is generally not homogeneous but varies across time and markets depending on a combination of factors. The impacts of the carbon price on the technology mix and CO2 emissions of the electricity sector are estimated from the ZEPHYR-Elec simulation model, which aims to reproduce the short-term electricity supply-demand equilibrium. Emission reductions from power generation induced by the European allowance market represent 3% to 5% of the counterfactual emissions. Since 2012, the carbon price no longer compensates for the gas-coal price differential in Europe. The distributional effects of the carbon price on the power sector are introduced in the ZEPHYR-Elec model based on an analytical representation of rent formation. The estimates suggest that the profits of the power sector are globally higher due to the carbon price, including in the case of auctioned allowances.