CO 2 Quota Attribution Effects on the European Electricity System Comprised of Self-Centred Actors

Abstract

Anthropogenic climate change confronts our electricity systems with new challenges which require us to rethink fundamental concepts of collaboration. Strong benefits and synergies arise when intertwining electricity systems and grids across borders. Countries can both collaborate by extending interconnection capacities, varying their degree of self-sufficiency and by trading emission certificates, or equivalently attributing the burden of emission reductions in different ways among one another. We investigate a near future European electricity system in a brownfield approach. The primary source of emission neutral electricity is coming from different variable renewable energy sources, but it also includes current and planned nuclear, coal, lignite and gas fuelled power plants. We show that different CO₂ emission attributions have an immense effect on the required local CO₂ prices. Furthermore, we investigate how this influences the technology mix in the individual countries. Prominent economists argue that it may be conceivably simpler to get everyone on board of the energy transition if a common emission price is negotiated. A cost optimal allocation of emissions, represented by a single European carbon price, leads to the placement of the majority of carbon-emitting production capacity in a band through central Europe, and thus to hugely uneven carbon emissions, because the emitting generation is removed from many countries and relocated to a few. We conclude that it is significantly easier for certain countries to decarbonise their electricity production than for others. The difficulty in the specific country depends strongly on how emission allowances are allocated in Europe. A deep collaboration between the countries leads both to a lowered total system cost and, perhaps even more importantly, to CO₂ emissions and required CO₂ prices that are much more equal between the European partners.