CO2 Emission Trading Effect on Baltic Electricity Market

AbstractThis paper investigates the CO2 cost pass-through to electricity prices of the Baltic market, as well as CO2 prices effect on merit order of generation sources and consequently marginal changes of CO2 emissions in response to changes in electricity demand. Authors use multiple regression analysis to demonstrate that a 1 EUR change in the price of CO2 emissions would increase the price of the Nordic power market by 0.55 EUR and in the Baltic countries by 0.67 EUR. Additionally, it has been shown that CO2 prices significantly impact merit order of electricity generators and consequently marginal emissions of CO2 due to reduction of electricity consumption in case of energy efficiency measures. Based on analysis, it can be concluded that, in the low price scenario (7.5 EUR per ton of CO2), combined heat and power plants are marginal generators emitting 0.25 tons of CO2 per 1MWh in cogeneration mode. If CO2 prices are above 20 EUR, the marginal emitter will become oil shale power plants that emit around 1 ton of CO2 per 1 MWh of electricity