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

Balmorel: Power system model | July 2006 - December 2007

The study shows that allocation to new entrants in the electricity market the way that it is currently practised in the ETS will distort the market and have adverse long-term effects. Allocation to new entrants works like an investment subsidy for lignite, coal and gas. This subsidy is substantial especially in Germany. Allocation to new entrants will, according to the study lead to a welfare-economic loss of € 5 billion in Germany, Finland, Norway, Sweden and Denmark.

The analyses were carried out using, among other things, the electricity market model Balmorel.

The project was carried through for the Danish Environmental Protection Agency.

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