Pass-Through of CO2 Emission Costs to Hourly Electricity Prices in Germany

By B. Hintermann. Journal of the Association of Environmental and Resource Economists, 2016

118 citations recorded by the source corpus.

I estimate the level of emissions cost pass-through to hourly wholesale electricity prices in Germany, based on spot market data. I control for contemporaneous shocks to demand and supply by constructing a detailed supply curve for fossil generation and intersecting it with residual demand for fossil-based electricity for every hour. Determining the marginal generator allows me to use marginal fuel and allowance costs (rather than prices) as explanatory variables in order to identify the level of cost pass-through directly and with a high level of precision. I find that allowance costs are passed through to electricity prices completely (or nearly completely) on average, but that the degree of pass-through varies over the load curve. My results suggest that there is no economic reason for free allowance allocation to the German electricity sector, and thus I support the updated allocation rules in phase 3 of the European Union Emissions Trading Scheme.

Subfields: Economics and Econometrics, Electrical and Electronic Engineering, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/5184efedef6f531fa6b116b1d1c5084a7a33fdfe

How researchers see this paper

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In Economics and Econometrics

1. Misa Tanaka
2. R. Sowerbutts
3. A. Zaklan
4. Klaus Gugler
5. S. Batten
6. Helene Naegele
7. Ulrich Volz
8. Yordying Thanatawee

In Electrical and Electronic Engineering

1. R. Sowerbutts
2. Misa Tanaka
3. A. Zaklan
4. S. Batten
5. Helene Naegele

In Renewable Energy, Sustainability and the Environment

1. R. Sowerbutts
2. Misa Tanaka
3. A. Zaklan
4. S. Batten
5. Helene Naegele

Citations in the corpus

• Does the EU ETS cause carbon leakage in European manufacturing? (2019, background): “(17)Fabra and Reguant (2014) and Hintermann (2016) find that power producers pass through their emission costs to electricity wholesale prices fully.”
• Climate Change: Macroeconomic Impact and Implications for Monetary Policy (2020, result): “Hintermann (2016) finds similar results in a study of cost pass-through to hourly wholesale electricity prices in Germany.”
• Effectiveness of climate policies: Carbon pricing vs. subsidizing renewables (2021, background): “Several studies (Dagoumas and Polemis, 2020; Fabra and Reguant, 2014; Fell et al., 2015; Guo and Gissey, 2019; Hintermann, 2016) demonstrate that power plant owners fully pass on their additional costs for a carbon price to end-consumers, while the subsidies for RE are financed via a consumption…”