Carbon pricing and the diffusion of renewable power generation in Eastern Europe: A linear programming approach

The purpose of this paper is to analyze the costs for reducing CO2 emissions in the power-generating sectors in Croatia, the European part of Russia, Macedonia, Serbia and the Ukraine in 2020 by using a linear programming model. The model takes into account the impact of technology learning and is based on the underlying assumptions of the so-called RAINS model frequently used to assess the potential and the costs for reducing air pollution in Europe. The results based on an exogenously given 15 percent reduction target for CO2 emissions show that the marginal cost for switching from a carbon-intense fuel to either a low-carbon or to a renewable energy source differs significantly among the countries. The marginal costs range from 4 to 90€ per ton CO2, and are mainly due to country differences in the availability of renewables, existing technologies and costs. The results also indicate that although it is clear that the Eastern European countries are not homogeneous in terms of CO2 abatement potential and costs, no general conclusions can be made of the region. This may have important implications for future JI/CDM activities. For instance, risk factors such as policy uncertainty and institutional obstacles may become crucial in determining the future allocation of JI/CDM projects across the region.