Impacts of emissions trading on power industries and electricity markets

Climate change has become a problem of extensive concern especially in developed countries. Emissions trading, in principle an efficient way to reduce the emissions of greenhouse gases, has been implemented in the European Union, and has been proposed in a number of other countries including Australia and the United States. The power industry is the largest emitter of greenhouse gases in many countries. The purpose of this paper is to briefly review the literature concerned with the potential impacts of emissions trading on power industries and electricity markets, including key issues of emissions trading scheme design, the methods of allowance allocation and their impacts on generation investments, renewable sources and electricity prices.