The European union emissions trading scheme and fuel efficiency of fossil fuel power plants in germany

Abstract

I investigate the impact of the European Union Emissions Trading Scheme (EU ETS) on fuel efficiency of fossil fuel power plants, using administrative micro data on German power plants from 2003 to 2012. I find positive efficiency effects leading to a decrease in fuel input conditional on output of around 0.3% on average for an increase in carbon cost of €1. A back-of-the-envelope calculation suggests that this reduction in fuel use by fossil fuel power plants due to the introduction of the EU ETS translates into reductions in total annual carbon emissions of about 1.5%–2% within the German energy sector.