How Co2 Prices Accelerate Decarbonisation – the Case of Coal-Fired Generation in Germany

Abstract

This paper analyses the impact of the world’s two main coal phase-out instruments: 1) direct regulatory intervention restricting the operation of existing coal-fired generation capacity and prohibiting investment in new capacity and 2) market-based CO2-pricing instruments that make emission-intensive coal-fired generation less competitive. We quantify these instruments’ potential effects in the empirical setting of Germany, where both instruments are employed concurrently. However, this paper’s approach and methodology can be applied in any jurisdiction or energy system worldwide.Our paper provides quantitative results with a pan-European partial-equilibrium electricity system model. The model applies an innovative three-stage approach. Stage 1 solves an investment and dispatch problem with reduced technical and temporal complexity. Stage 2 computes the dispatch problem at a bihourly resolution and Stage 3 solves the investment and dispatch problem for Germany with increased technical complexity.Our results confirm that both a regulated phase-out and a price on CO2 emissions can reduce the amount of coal-fired generation in the system. If CO2 prices remain at current levels, coal-fired power plants leave the market significantly before the regulated phase-out date, reducing employment demand in Lusatia. Regions and federal governments should take this finding into account when planning and preparing for structural change.

Keywords: coal phase-out, CO2 price, employment, Decarbonisation, energy systems modelling