A utility-eye view of the CO2 compliance-decision process in the European power-sector

The purpose of this paper is to provide a utility eye-view of the European power-sectorʹs CO2-compliance decision process under a tradable emissions scheme. The cost analysis indicates that, in the medium term, many utilities are likely to consider options based on traditional power technologies such as converting existing coal-fired capacity to burn gas, extending the lives of nuclear capacity, and replacing old coal-fired plants with more efficient gas- or even coal-fired units. The long-term economic potential of future options is highly uncertain, and utilities are likely to respond to this by maintaining flexibility in fuel choices and avoid large investments that lock them into a specific compliance method before more efficient and cleaner technologies have crystallized. Given the multitude of possible CO2-mitigation options, there is a strong case for emissions trading and for refraining from policies that build on mandatory fuel-requirements, higher rates of capital stock turnover and technology standards.