Authors
World Bank, International Energy Agency (IEA), International Carbon Action Partnership (ICAP)
- Citation
- “ World Bank ; International Energy Agency (IEA) ; International Carbon Action Partnership (ICAP) . 2024 . Carbon Pricing in the Power Sector: Role and design for transitioning toward net-zero carbon development . © Washington, DC: World Bank . http://hdl.handle.net/10986/42091 License: CC BY-NC 3.0 IGO . ”
- Collection(s)
- Energy Study
- DOI
- https://doi.org/10.1596/42091
- Pages
- 22
- Published in
- United States of America
- Rights
- CC BY-NC 3.0 IGO
- Rights Holder
- World Bank Group
- Rights URI
- https://creativecommons.org/licenses/by-nc/3.0/igo
- UNIT
- CCG-CFE
- URI
- https://hdl.handle.net/10986/42091
- date disclosure
- 2024-09-09
- region geographical
- World
Files
Table of Contents
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- Foreword 3
- Acronym list 8
- Acknowledgments 9
- Executive summary 11
- Lessons and recommendations 18
- Three main questions to guide the choice and the design of cpis for the power sector in lics and mics 21
- 1. Introduction 25
- 1.1 Impetus for this report 25
- 1.2 Scope of report and theory of change 28
- 1.2.1 Energy policy objectives for power sectors in low- and middle-income countries 28
- 1.2.2 The need for new policy instruments to achieve the new decarbonization goals in the power sector 32
- 1.2.3 Development outcomes from effective power decarbonization 34
- 1.3 Methodology 34
- 1.3.1 Literature review 34
- 1.3.2 Case studies 35
- 2. Electric power and decarbonization in LICs and MICs 39
- 2.1 Power sector characteristics, value chain, and stakeholders 40
- 2.1.1 The power sector value chain and stakeholders 40
- 2.1.2 Power sector structures 42
- 2.1.3 Dispatch procedures 49
- 2.2 Key challenges in LICs’ and MICs’ power sector decarbonization 49
- 2.2.1 Challenges regarding generation and storage 50
- 2.2.2 Challenges regarding dispatch, markets, and transmission 52
- 2.2.3 Challenges regarding distribution and retail 54
- 2.2.4 Challenges regarding consumption 54
- 2.2.5 Challenges regarding economics and governance 56
- 2.3 Policy instruments for decarbonizing power sector 57
- 2.4 An infographic visualizing the introduction of a CPI in the power sector in LICs and MICs 63
- 3. Roles of carbon pricing in the power sector 65
- 3.1 Key elements of CPI design in the power sector 65
- 3.1.1 Design elements relevant to both a carbon tax and an ETS when applied to the power sector 67
- 3.1.2 Design elements of a carbon tax when applied to the power sector 68
- 3.1.3 Design elements of an ETS when applied to the power sector 70
- 3.1.4 Use of dual carbon pricing mechanisms in the power sector 74
- 3.2 Regulation points of CPI in the power sector 74
- 3.2.1 Upstream fuel distributors 76
- 3.2.2 Generation stage 77
- 3.2.3 Dispatch/transmission stage 78
- 3.2.4 Distribution stage 80
- 3.2.5 Consumption stage 80
- 3.3 The potential role of carbon pricing in the power sector 81
- 3.3.1 A shift toward lower-carbon generation mixes 82
- 3.3.2 Influencing dispatch and wholesale purchases in favor of lower-carbon plants 88
- 3.3.3 A shift in consumption patterns 91
- 3.3.4 An intake of new government revenues 94
- 4. Assessing the potential impacts of pricing carbon in different LICs’ and MICs’ power sector contexts 101
- 4.1 The potential for a shift toward lower-carbon generation mixes 102
- 4.1.1 Insufficiently high carbon price to shift investment decisions 102
- 4.1.3 The influence of power sector structure on investment and retirement decisions 105
- 4.2 The potential influence on dispatch and wholesale purchases in favor of lower-carbon plants in LICs and MICs 106
- 4.2.1 Capacity, energy, or grid constraints 107
- 4.2.2 The influence of power sector structure on how carbon pricing affects dispatch decisions 109
- 4.2.3 Failures at the dispatch point 110
- 4.2.4 The influence of power sector structure and regulation on how carbon pricing affects wholesale purchase decisions 111
- 4.3 Potential shift in consumption patterns in LICs and MICs 112
- 4.3.1 Insufficient pass-through of carbon costs to retail tariffs 112
- 4.3.2 Time-of-use tariffs and smart metering 114
- 4.3.3 Auto-generation and the risk of grid defection 115
- 4.3.4 The distributional effects of carbon pricing’s impact on retail tariffs 116
- 4.4 Potential intake of new government revenues in LICs and MICs 118
- 4.5 Matrices to track CPI impacts and assess cpis in different power sector structures 119
- 5. Lessons learned and recommendations 135
- 5.1 The role of CPIs in the broader context of decarbonizing the power sector in LICs and MICs 135
- 5.2 Different CPIs for different power sector structures 137
- 5.3 Designing CPIs to ensure effectiveness, minimize undesired impacts, and maximize co-benefits 139
- 5.4 Political economy challenges and learning curve 143
- 6. Conclusion 147
- 7. Bibliography 153
- Figure ES1 14
- Degrees of market liberalization and unbundling of power sector 14
- Figure ES2 15
- Regulation points along the value chain 15
- Figure ES3 16
- Overview Matrix - Simplified assessment of CPIs options in three power sector models: fully liberalized market, single-buyer model and vertically integrated monopoly 16
- Figure ES4 19
- Main lessons and recommendations 19
- Figure 1.1 29
- Theory of change on the role of carbon pricing in the power sector in low- and middle-income countries 29
- Figure 1.2 32
- Number of countries that have announced commitments to net-zero / carbon neutrality 32
- Figure 2.1 41
- Paradigm change in the power sector 41
- Figure 2.2 42
- Simplified electric power sector value chain and stakeholders 42
- Figure 2.3 43
- Degrees of market liberalization and unbundling of power sector 43
- Figure 2.4 50
- Schematic overview of key issues in LICs’ and MICs’ power sector structures for decarbonization 50
- Figure 2.5 63
- Infographic synthesizing the introduction of CPIs in the power sector in LICs and MICs 63
- Figure 3.1 66
- Map of carbon taxes and emissions trading schemes implemented or scheduled for implementation around the world 66
- Figure 3.2 77
- Regulation points along the power sector value chain 77
- Figure 3.3 90
- Illustration of change in merit order with addition of carbon prices (CPs) 90
- Figure 3.4 95
- Potential uses of carbon pricing revenue 95
- Figure 3.5 96
- Carbon revenues by revenue use and jurisdiction, 2022–2023 96
- Box 3.9 98
- Use of revenues from the EU ETS 98
- Box 4.1 103
- The impact of Kazakhstan’s ETS on investment and retirement decisions 103
- Box 4.2 104
- Issues with incentivizing lower-emission generation in Kazakhstan 104
- Box 4.3 107
- Security of supply in South Africa 107
- Box 4.4 108
- The impact of Colombia’s carbon tax on dispatch decisions 108