Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/303225 
Year of Publication: 
2024
Series/Report no.: 
LEM Working Paper Series No. 2024/19
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
The electricity generating sector is the single largest source of climate altering pollution. A country aiming to meet its targets for a net-zero economy needs therefore to radically reduce the emissions stemming from this sector. Charging carbon emissions is the preferred market-friendly policy to promote the diffusion of green technologies assuming that investors find more profitable to adopt technologies not burdened by the cost of carbon emissions. We study empirically the effectiveness of an increase in the cost of carbon emissions in order to favor the replacement of power plants burning fossil fuels with generators powered by renewable energy in Italy. Based on hourly data from the Italian electricity market we find that a policy increasing the cost of carbon emissions is less effective than expected in promoting clean energy investments. Indeed, increasing the cost of emissions actually increases the relative profitability of brown energy sources in respect of green ones in the most likely conditions. We conclude that increasing the cost of carbon emissions hinders the diffusion of technologies necessary for the green transition in the Italian electricity production sector. More in general, our results suggest that market friendly policies based on biasing incentives for profit-seeking operators need to carefully analyze the mechanisms underpinning the markets of interests to prevent policy failures.
Subjects: 
Electricity market
Carbon pricing
Hourly-frequency model
Energy transition
JEL: 
C63
H23
Q42
Q48
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.