Quantitative Analysis of the Reduction of Greenhouse Gas Emissions in the Power Sector
Authors:   ,   Technische Universität, Lehrstuhl für Energiewirtshaft, Anke Carl-Philipp 
Published: November 2021

Climate change is one of the pressing issues of our time. In order to limit global warming, the greenhouse gas emissions (GHG) need to be reduced drastically over the next decades in all sectors. A special role is played by the power sector, because it is the one responsible for most GHG emissions and because its costs for decarbonization are rather low. Consequently, national policies aim at reducing GHG emissions by supporting the expansion of renewable energy sources for electricity production (RES) and initiating a coal phase-out (CPO). European policymakers have implemented the EU Emissions Trading Scheme (EU ETS), a mechanism for pricing GHG emissions in the power and industry sector across Europe that incentives carbon mitigation. This dissertation investigates how national and European policies affect the power market and especially its GHG emissions and examines how these policies interact. This dissertation shows that RES, in addition to the short-term, well-studied, merit order effect, which reduces power wholesale prices, also have long-term effects on electricity markets. The long-term effect describes the impact that RES have on investment decisions into conventional technologies, which are reduced by over 8 GW in Germany. This indicates that the power market adapts to the expansion of RES. With regard to the GHG mitigation of RES, it is shown that currently RES contribute substantially to the mitigation of GHG emissions. Because wind power substitutes coal power, it has a significantly higher potential to avoid GHG emissions than solar power in Germany. Provided wind stays favorable in the future, this portends from a climate perspective that politics should focus on the expansion of wind. It further justifies higher support schemes for wind than solar energy. The impact of the CPO on the GHG emissions depends strongly on legal implementation. If no further actions are taken, the demand for emission decreases, because existing emitters leave the market and the price drops to 0 EUR/t. The EU ETS loses its incentive effect and the emissions are realized elsewhere since the cap remains the same and is fully exploited. Therefore, alongside the CPO, emission certificates have to be deleted in order to maintain the incentive effect of the EU ETS. Furthermore, the loss in valuation of the German coal power plants depends strongly on the time of the CPO. Given high expected emission prices and the expansion of RES, coal-fired power plants cannot be operated economically advantageously in the long-term. Therefore, no devaluation is expected if power plants are phased out in 2038 or shortly before and hence, those power plants should not receive any compensation. Additionally, this dissertation shows that the EU ETS is a strong European policy that provides sufficient incentives to meet the European climate targets in 2030 and to realize the necessary expansion of RES. However, if national RES development paths are implemented, this leads to higher overall costs but also very different profitability of RES in each country This is because countries with high ambitions regarding the expansion of RES face self-marginalization effects, which reduces the revenues for RES due to the merit order effect, and increases the level of support needed for them to expand. In contrast, countries with low RES ambitions have little or no need of support schemes but benefit from low prices in the EU ETS due to strong RES expansion in countries with high ambitions. Summarizing, this dissertation demonstrated that both national and European policy contribute to the decarbonization of the European power sector. However, the different policies interact. This can have negative impacts, which indicates that a greater harmonization of policies is necessary. Further research should develop comprehensive policy approaches and discuss possible challenges.