Optimal Abandonment of Coal-Fired Stations in the EU

Carbon-fired power plants could face some difficulties in a carbon-constrained world. The traditional advantage of coal as a cheaper fuel may decrease in the future if CO2 allowance prices start to increase. This paper seeks to answer empirically the most drastic question that an operating coal-fired power plant may ask itself: under what conditions would it be optimal to abandon the plant and obtain its salvage value? We try to assess this question from a financial viewpoint following a real option approach at firm level so as to attract the interest of utilities and the broader investment community. We consider the specific case of a coal-fired power plant that operates under restrictions on carbon dioxide emissions in an electricity market where gas-fired plants are considered as marginal units. We also consider three sources of uncertainty or stochastic variables: the coal price, the gas price and the emission allowance price. These parameters are derived from future markets and are used in a three-dimensional binomial lattice to assess the value of the option to abandon. Our results (and sensitivity analysis) show the conditions that have to be met for the abandonment option to be exercised. This option to abandon coalfired plants is, however, hardly likely to be exercised if plants can operate as peaking plants. However, the decision may go differently in different circumstances, such as high CO2 allowance prices, very low volatility of allowance price or a decrease in the price of gas. The decision is also influenced by the remaining lifetime of the plant and its thermal efficiency. In any case the price of CO2 will work to bring forward the decision to abandon in older and less efficient coal-fired plants, which are less likely to be retrofitted in the future.power plants, coal, natural gas, emission allowances, futures markets, stochastic processes, abandonment, real options

Optimal Investment in Energy Efficiency under Uncertainty

This paper deals with the optimal time to invest in an energy efficiency improvement. There is a broad consensus that such investments quickly pay for themselves in lower energy bills and spared emission allowances. However, investments that at first glance seem worthwhile are frequently not undertaken. Our aim is to shed some light on this issue. In particular, we try to assess these projects from a financial point of view so as to attract sufficient interest from the investment community. We consider the specific case of a firm or utility already in place that consumes huge amounts of coal and operates under restrictions on carbon dioxide emissions. In order to reduce both coal and carbon costs the firm may undertake an investment to enhance energy efficiency. We consider three sources of uncertainty: the fuel commodity price, the emission allowance price, and the overall investment cost. The parameters of the coal price process and the carbon price process are estimated from observed futures prices. The numerical parameter values are then used in a three-dimensional binomial lattice to assess the value of the option to invest. As usual, maximising this value involves determining the optimal exercise time. Thus we compute the trigger investment cost, i.e. the threshold level below which immediate investment would be optimal. A sensitivity analysis is also undertaken. Our results go some way towards explaining the so-called energy efficiency paradox.Energy efficiency, Real options

Who bears the burden of greening electricity?

Faced with the threat of climate change many countries are promoting renewable energies to decarbonize their energy system. A common policy to foster electricity from renewable energy sources are feed-in tariffs which are financed by surcharges on electricity prices. Higher electricity prices in turn raise concerns on regressive distributional impacts. In this paper, we investigate the distributional impacts of three alternative policies to subsidize renewable energy production in Spain: (i) exemptions from the electricity surcharge for residential consumers, (ii) an increase in mineral oil taxes, and (iii) an increase in value-added taxes. We find that all three options can attenuate the regressive distributional effects compared to feed-in tariffs. For our quantitative impact assessment, we couple a microsimulation model with a computable general equilibrium model to capture the incidence on heterogeneous households in an economy-wide framework.This research is supported by the Basque Government through the BERC 2018-2021 program and by the Spanish Ministry of Economy and Competitiveness MINECO through BC3 María de Maeztu excellence accreditation MDM-2017-0714. In addition, this study received funding from the Ministry of Science, Innovation and Universities of Spain ( RTI2018-093352-B-I00 ) and from the European Unio

Análisis de una reforma fiscal ambiental para España con devoluciones para todos los hogares. Papeles de Economía Española,

En los últimos años diversos organismos internacionales han señalado la importancia de potenciar la fiscalidad energético-ambiental en España dado su reducido uso en la actualidad. En este trabajo proponemos y analizamos una reforma o paquete fiscal ambiental en España que podría elevar su aceptabilidad política y social, inspirada en la propuesta “carbon fee and dividend” de Estados Unidos y apoyada por amplios sectores demócratas y republicanos. La reforma incluye tres impuestos (carburantes, contaminantes atmosféricos y CO2 en sectores difusos) y la devolución de la recaudación (estimada en 6800 millones €) mediante transferencias directas e iguales para todos los hogares (417 € por hogar). La propuesta generaría una notable reducción de las emisiones de CO2 (14%), NOX (13%) y SO2 (17%) y una pequeña reducción del PIB (0,2%). La medida sería claramente progresiva, viendo aumentado el primer y segundo quintil de renta su capacidad media de gasto en 302 y 69 € anuales. Los hogares por debajo del umbral de la pobreza verían aumentado su capacidad media de gasto en 301 €. No obstante, esta reforma podría ser diseñada para modular su progresividad o para incluir una mayor protección a colectivos vulnerables.Agradecemos los comentarios recibido por Xavier Labandeira, Desiderio Romero Jordán y José Félix Sanz Sanz. Los autores también reconocen la financiación recibida del programa Horizonte 2020 de la Unión Europea (Proyecto TRANSrisk, nº 642260) y del Ministerio de Economía y Competitividad de España (ECO2015-68023). Mikel González-Eguino agradece la financiación recibida del Gobierno Vasco (IT-799-13). Los autores declaran que no tienen conflictos d

A methodological approach for assessing flexibility and capacity value in renewable-dominated power systems: A Spanish case study in 2030

Maintaining the security of supply is one of the challenges that system operators face. Variability and uncertainty increase due to the penetration of variable renewable energy sources such as solar and wind, while flexible technologies such as traditional thermal units are phased out to reduce emissions. The current methods for assessing power system adequacy are based on historical operations and are generally intended to be applied to thermal-dominated electricity systems. Therefore, it is necessary to improve current adequacy assessment methods since they usually neglect the flexibility of power systems. This paper presents a methodological approach for jointly assessing the adequacy and flexibility of power systems. The methodology's usefulness is demonstrated through its application to the Spanish power system. For the case study, results show that new closed-looped pumped storage hydro technology provides 25% flexibility while contributing to adequacy due to higher installed capacity and round-trip efficiency. Due to shorter storage duration, batteries only contribute to flexibility, supplying 16% of the total operating reserves. Therefore, this study shows that metrics of flexibility and individual contribution to the power system adequacy complement each other and simultaneously enable the scarcities of power systems to be observed.This research has been carried out thanks to the Spanish Ministry of Economy and Competitiveness MINECO through BC3 María de Maeztu excellence accreditation MDM-2017-0714 Maria de Maeztu Grant

The potential of behavioural change for climate change mitigation: a case study for the European Union

Mainstream literature on climate change concentrates overwhelmingly on technological solutions for this global long-term problem, while a change towards climate-friendly behaviour could play a role in emission reduction and has received little attention. This paper focuses on the potential climate mitigation by behavioural change in the European Union (EU) covering many behavioural options in food, mobility and housing demand which do not require any personal up-front investment. We use the Global Change Assessment Model (GCAM), capturing both their direct and indirect implications in terms of greenhouse gas emissions. Our results indicate that modest to rigorous behavioural change could reduce per capita footprint emissions by 6 to 16%, out of which one fourth will take place outside the EU, predominantly by reducing land use change. The domestic emission savings would contribute to reduce the costs of achieving the internationally agreed climate goal of the EU by 13.5 to 30%. Moreover, many of these options would also yield co-benefits such as monetary savings, positive health impacts or animal wellbeing. These results imply the need for policymakers to focus on climate education and awareness programs more seriously and strategically, making use of the multiple co-benefits related with adopting pro-environmental behaviour. Apart from that, the relevance of behavioural change in climate change mitigation implies that policy-informing models on climate change should include behavioural change as a complement or partial alternative to technological change. © 2017, Springer Science+Business Media B.V.This study received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 642260 (TRANSrisk project). Mikel González-Eguino and Iñaki Arto acknowledge financial support from the Ministry of Economy and Competitiveness of Spain (ECO2015-68023) and the Basque Government (IT-799-13)

From integrated to integrative: Delivering on the paris agreement

In pursuit of the drastic transformations necessary for effectively responding to climate change, the Paris Agreement stresses the need to design and implement sustainable, robust, and socially acceptable policy pathways in a globally coordinated and cooperative manner. For decades, the scientific community has been carrying out quantitative modelling exercises in support of climate policy design, primarily by means of energy systems and integrated assessment modelling frameworks. Here, we describe in detail the context of a hitherto ineffective scientific contribution to policymaking, highlight the available means to formulate a new paradigm that overcomes existing and emerging challenges, and ultimately call for change. In particular, we argue that individual modelling exercises alone widen the gap between formal representation and real-life context in which decisions are taken, and investigate major criticisms to which formalised modelling frameworks are subject. We essentially highlight the importance of employing diverse modelling ensembles, placing the human factor at the core of all modelling processes, and enhancing the robustness of model-driven policy prescriptions through decision support systems. These altogether compose a truly integrative approach to supporting the design of effective climate policy and sustainable transitions and, therefore, strengthen the modelling-policymaking interface. © 2018 by the authors

Análisis de impacto de alternativas para la financiación de las energías renovables en España

This article analyzes the economic, social and environmental impact of various financing mechanisms for the regulated costs of renewable energies in the electricity sector (RECORE) in Spain. The scenarios analysed, alternative to the current system, in which the costs are transferred in full to the electricity bill of final consumers, are the following: financing through the General State Budgets (PGE scenario), financing through a tax proportional to final energy consumption (Energy scenario) and financed through a CO2 tax in diffuse sectors (CO2 scenario). The study uses a computable general equilibrium (CGE) model and a micro-simulation model that includes detailed information on the 22,000 households included in the Household Budget Survey. The results show that the impact at the macroeconomic level is positive but very small for all the scenarios analyzed and that the changes at the sectoral level or in emissions depend notably on the scenario. All the scenarios favor low-income households since their spending on electricity represents a relatively higher percentage of their income. Although no alternative is better in all the dimensions analyzed, taxes on energy or CO2 favor the energy transition, while the PGE alter native generates more progressive distributional effects.Este trabajo ha sido cofinanciado por Iberdrola, el programa BERC 2018-2021, el Ministerio de Economía y Competitividad a través de la distinción María de Maeztu excelencia acreditación MDM-2017- 0714 y el Ministerio de Ciencia, Innovación y Universidades de España (RTI2018-093352-B-I00

The impact of U.S. re‐engagement in climate on the Paris targets

The Paris Agreement seeks to combine international efforts to keep global temperature increase to well-below 2°C. Whilst current ambitions in many signatories are insufficient to achieve this goal, optimism prevailed in the second half of 2020. Not only did several major emitters announce net-zero mitigation targets around mid-century, but the new Biden Administration immediately announced the U.S.’s re-entry into Paris and a net-zero goal for 2050. U.S. federal re-engagement in climate action could have a considerable impact on its national greenhouse gas emissions pathway, by significantly augmenting existing state-level actions. Combined with U.S. re-entry in the Paris Agreement, this could also serve as a stimulus to enhance ambitions in other countries. A critical question then becomes what such U.S. re-engagement, through both national and international channels, would have on the global picture. This commentary explores precisely this question, by using an integrated assessment model to assess U.S. national emissions, global emissions, and end-of-century temperatures in five scenarios combining different climate ambition levels in both the U.S. and the rest of the world. Our analyses finds that ambitious climate leadership by the Biden Administration on top of enhanced climate commitments by other the major economies could potentially be the trigger for the world to fulfill the temperature goal of the Paris Agreement