Theory and Empirical Evidence for Carbon Cost Pass-Through to Energy Prices

This paper provides a theoretical explanation of how emissions trading impacts on energy prices

Marginal CO2 cost pass-through under imperfect competition in power markets

In line with economic theory, carbon ETS determines a rise in marginal cost equal to the carbon opportunity cost regardless of whether carbon allowances are allocated free of charge or not. This paper aims at evaluating to what extent firms in imperfectly competitive markets will pass-through into electricity prices the increase in cost. By using the load duration curve approach and the dominant firm with competitive fringe model, we show that the result is ambiguous. The increase in price can be either lower or higher than the marginal CO2 cost, depending on several structural factors: the degree of market concentration, the available capacity (whether there is excess capacity or not), the power plant mix in the market and the power demand level (peak vs. off-peak hours). The empirical analysis of the Italian context (an emblematic case of imperfectly competitive market), which can be split into four sub-markets with different structural features, provides a contribution supporting the model predictions. Market power, therefore, would determine a significant deviation from the "full pass-through" rule but we cannot know the sign of this deviation, a priori, i.e. without before taking carefully into account the structural features of the power market.Emissions trading Power pricing Imperfect competition

Measuring the environmental benefits of hydrogen transportation fuel cycles under uncertainty about external costs

In this paper, we attempt to measure the environmental benefits of hydrogen deployment in the transportation sector. We compare the hydrogen pathways to the conventional transportation fuel cycles in terms of external costs, estimated using the results of the most accurate methodologies available in this field. The central values of performed analysis bring us ambiguous results. The external cost of the best conventional solution ("oil to diesel hybrid internal-combustion engine") in some cases is just higher and in others just lower than that of the best fossil fuel to hydrogen solution ("natural gas to hydrogen fuel cell"). Nevertheless, by accounting for the uncertainty about external costs, we are able to remove this ambiguity highlighting that the hydrogen pathway provides significant environmental benefits ,especially in densely populated areas, assuming 100% city driving.Hydrogen Environment External costs