Methodology for Measuring CO2 Pass-Through: A Report for EnergieNed
8 December 2005
By Graham Shuttleworth and Sean Gammons et al.
The Dutch Ministry of Economic Affairs requested that DTe, the Dutch office of energy regulation, carry out an enquiry into the effect on electricity prices of the European Union's Emissions Trading Scheme (EU ETS) for carbon dioxide emissions. As an aid to DTe, the Dutch association of electricity generators, EnergieNed, asked NERA to develop a proposed methodology for this enquiry. This report presents NERA's recommendations for DTe's approach. The proposed methodology addresses how spark spreads observed over the course of 2004 and 2005 can be used to look into the impact of carbon dioxide on prices, taking into account other price setting factors; how "windfall profits" can be detected, taking into account freely allocated carbon dioxide emissions allowances and the different plant types owned by each company; and whether DTe can still use the Lerner index to analyze market power in the electricity market, as it did in years before the introduction of the EU ETS.
