Fuel Switching in the Electricity Sector under the EU ETS: Review and Prospective

Abstract

The European Union has implemented the European Union emission trading scheme (EU ETS) as an instrument to facilitate greenhouse gas (GHG) emission abatement stipulated in the Kyoto protocol. Empirical data show that in the early stages of the EU ETS, the value of a ton of CO2 has already led to emission abatement through switching from coal to gas in the European electric power sector. In the second part of this paper, an electricity generation simulation model is used to perform simulations on the switching behavior in both the first and the second trading periods of the EU ETS. In 2005, the reduction in GHG emissions in the electric power sector due to EU ETS is estimated close to 88Mton . For the second trading period, a European Union allowance (EUA) price dependent GHG reduction curve has been determined. The obtained switching potential turns out to be significant, up to 300Mton /year, at sufficiently high EUA prices.

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