Environmental Valuation & Cost-Benefit News
Carbon tax or carbon permits: the impact on generators’ risks
05/26/07
12:00:15 am, by damageva 
, 164 words, 631 views 
Categories: Energy, Climate Change GHG Carbon CO2, U.K., Companies,CSR,Business,Finance, Academic Study/Journal Article, Costs and Benefits
Carbon tax or carbon permits: the impact on generators’ risks
Abstract: Volatile fuel prices affect both the cost and price of electricity in a liberalised market. Generators with the price-setting technology will face less risk to their profit margins than those with a technology that is not price-setting, even if its costs are not volatile. Emissions permit prices may respond to relative fuel prices, further increasing volatility. This paper simulates the impact of this on generators’ profits, comparing an emissions trading scheme and a carbon tax against predictions for the UK in 2020. The carbon tax reduces the volatility faced by nuclear generators, but raises that faced by fossil fuel stations. Optimal portfolios would contain a higher proportion of nuclear plant if a carbon tax was adopted.
Keywords: Electricity, emissions trading, emissions taxes, fuel price risk
by Richard Green*
ftp://ftp.bham.ac.uk/pub/RePEc/pdf/RGreen.pdf
University of Birmingham; Institute for Energy Research and Policy http://www.bham.ac.uk
Birmingham B15 2TT; Telephone: +44 121 415 8216; Email: r.j.green@bham.ac.uk
March 2007
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