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Skip to 0 minutes and 7 secondsAvoiding serious climate change requires us to reduce our emissions right now. Voluntary approaches have failed, thus many countries turned to policy instruments, such as emission taxes, emissions trading, and standards.

Skip to 0 minutes and 25 secondsWe know how policy instruments perform in a perfect world. However, in most applications we have market imperfections. For example, most greenhouse gas emissions stem from energy use. And in many countries, the energy industry has firms with substantial market power. Thus, the question arises, how should we regulate firms that have market power? You may start from different scenarios. Market power may reside directly in the industry that emits greenhouse gases, as is often the case in electricity supply. There are also examples where market power resides in an industry that supplies clean technologies. Finally, there are cases in which customers of the emitting industry have market power.

Skip to 1 minute and 10 secondsIn the theoretical assignment, we ask you to pick one of those cases, and select one policy instrument. Please analyse how this policy instrument should be designed to cope with the problem of reducing emissions in a case with market power. What will our future energy supply look like? Will it all be renewable, or solar panels on every roof, wind turbines on the hills, and some storage in the basement? Or will it remain fossil and nuclear, probably with some carbon capture technology?

Skip to 1 minute and 45 secondsWe know there are several options to impact our energy system, ranging from carbon taxes to renewable support mechanisms, energy efficiency instruments, to smart energy systems. How would our energy system change, if we implement one or the other, or all of them? And more important, what will it cost? In the numerical assignment, you will be able to address those questions. Using the European energy system as a starting point, you will design and explore your own possible futures, and build a numerical model for that.

Introducing the assignments

Avoiding serious climate change requires us to reduce our emissions right now. Voluntary approaches have failed, thus many countries turned to policy instruments, such as emission taxes, emissions trading, and standards.

Theoretical Assignment

Market power may reside directly in the industry that emits greenhouse gases, as it’s often the case in electricity supply. There are also examples where market power resides in an industry that supplies clean technologies. Finally, there are cases in which customers of the emitting industry have market power. So we can distinguish between the following three scenarios:

  • Industry emitting greenhouse gases (GHG) has market power.
  • Clean technology industry has market power.
  • Customers have market power.

In the theoretical assignment, we ask you to pick one of those cases, and select one policy instrument. Please analyse how this policy instrument should be designed to cope with the problem of reducing emissions in a case with market power.

Numerical Assignment

We know there are several options to impact our energy system, ranging from carbon taxes to renewable support mechanisms, energy efficiency instruments, to smart energy systems. How would our energy system change, if we implement one or the other, or all of them? And more important, what will it cost?

In the numerical assignment, you will be able to address those questions. Using the European energy system as a starting point, you will design and explore your own possible futures, and build a numerical model for that.

To learn more on the assignment process proceed to the next step.

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This video is from the free online course:

Exploring Possible Futures: Modeling in Environmental and Energy Economics

University of Basel

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