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Faculty of Economics

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Chyong, C-K., Guo, B., Newbery, D.

The impact of a Carbon Tax on the CO2 emissions reduction of wind

CWPE1904

Abstract: Energy policy aims to reduce emissions at least long-run cost while ensuring reliability. Its efficacy depends on the cost of emissions reduced. Britain introduced an additional carbon tax (the Carbon Price Support, CPS) for fuels used to generate electricity that by 2015 added £18/t CO2, dramatically reducing the coal share from 41% in 2013 to 6% in 2018. Policies have both short and long-run impacts. Both need to be estimated to measure carbon savings. The paper shows how to measure the Marginal Displacement Factor (MDF, tonnes CO2 /MWh) for wind. The short-run MDF is estimated econometrically while the long-run MDF is calculated from a unit commitment model of the GB system in 2015. We examine counter-factual fuel and carbon price scenarios. The CPS lowered the short-run SR-MDF by 7% in 2015 but raised the long-run LR-MDF (for a 25% increase in wind capacity) by 18%. We discuss reasons for the modest differences in the SR and LR MDFs. The CPS raised the 2016 wholesale price by £6.22/MWh with impacts on interconnector trade.

Keywords: Wind, marginal displacement factors, carbon pricing, fuel mix, unit commitment model, econometrics

JEL Codes: H23 L94 Q48 Q54

Author links: David Newbery  Bowei Guo  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1904.pdf

EPRG Paper Link: 1904

Open Access Link: https://doi.org/10.17863/CAM.37461