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Analysing Carbon Pass-Through Rate Mechanism in the Electricity Sector: Evidence from Greece

Dagoumas, Athanasios and Polemis, Michael (2018): Analysing Carbon Pass-Through Rate Mechanism in the Electricity Sector: Evidence from Greece.

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Abstract

In this study, we shed light into the carbon pass-through rate mechanism to wholesale prices in the Greek electric market. For this reason, we utilize a rich micro-level panel, including hourly data for 23 power plants spanning the period January 2014 to December 2017. In order to study the pass-through of emissions costs to wholesale electricity prices, we used an instrumental variable methodology. Our findings survived several robustness checks, accounting for logged linear and non-linear econometric specifications. Moreover, they are in alignment with the relevant recent literature, indicating the existence of an almost complete pass-through rate mechanism. This means that electricity firms almost fully internalize the cost of CO2 permits, incurring important policy implications to policy makers and government officials.

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