Electricity Generation and Supply

While examining the impact of carbon pricing on electricity, the power sector is one of the least exposed sectors to international trade and therefore more capable of transferring carbon prices to end consumers, as was observed under Phase I and II of the EU ETS [18]. While this is an effective means toward achieving a reduction of point source emissions from power generation, electro-intensive processes such as the chlor- alkali are particularly vulnerable to indirect increases in electricity costs from pass-through carbon prices. Under a scenario where power producers are forced to purchase 100% of emissions allowances at 20€ under a compliance market, the cost of electricity could rise by approximately 15€ per MWh.15)

15) Assuming a grid carbon emissions factor of 0.75tC02eMWh-1 for regions that rely heavily on thermal based generation.

To reduce the impact on consumers and maintain competitiveness in the regional market, power stations can shift to lower carbon content fuels, namely natural gas, when the 'clean spark spread'16) exceeds the 'clean dark spread'--7) While this is an effective measure to reduce the pass-through cost to consumers, the increased demand for natural gas in the power sector, referred to as the 'dash-for-gas', may result in higher natural gas prices, consequently affecting the downstream chemical industry that relies heavily on gas as a primary feedstock.

The price of raw materials as well as escalating electricity prices from pass-through carbon costs threatens the marginal cost of production, particularly for the inorganic industry that produces chlorine, nitrogen, hydrogen and oxygen. For chlorine producers in Europe which are subject to rising electricity prices under a 20€ per tonne of CO2 scenario, this could result in a 16% increase in production cost [15].

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