A Market Design Proposal for Decoupling Carbon and Electricity Prices
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arXiv
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| Hauptverfasser: | , , |
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| Format: | Preprint |
| Veröffentlicht: |
2026
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| _version_ | 1866910077029449728 |
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| author | Finster, Simon Kasberger, Bernhard Rütten, Simon |
| author_facet | Finster, Simon Kasberger, Bernhard Rütten, Simon |
| contents | In European day-ahead electricity markets, carbon allowance costs passed through by marginal fossil plants raise consumer expenditure and generate inframarginal rents for non-emitting generators. We propose a settlement modification: when the zonal day-ahead price exceeds a threshold, non-emitting generation is remunerated at the clearing price minus a fixed CO2 proxy deduction, while all other units continue to receive the uniform price. The mechanism thus reallocates a part of the inframarginal rents to consumers. Using hourly data we estimate static average expenditure reductions of about 8.5% in Austria and 4.7% in Germany in 2025. We discuss bidding incentives around the threshold, interactions with Contracts for Difference, implementation in coupled bidding zones, and a gas-cost variant for the 2022 energy crisis. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_25874 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | A Market Design Proposal for Decoupling Carbon and Electricity Prices Finster, Simon Kasberger, Bernhard Rütten, Simon General Economics Economics In European day-ahead electricity markets, carbon allowance costs passed through by marginal fossil plants raise consumer expenditure and generate inframarginal rents for non-emitting generators. We propose a settlement modification: when the zonal day-ahead price exceeds a threshold, non-emitting generation is remunerated at the clearing price minus a fixed CO2 proxy deduction, while all other units continue to receive the uniform price. The mechanism thus reallocates a part of the inframarginal rents to consumers. Using hourly data we estimate static average expenditure reductions of about 8.5% in Austria and 4.7% in Germany in 2025. We discuss bidding incentives around the threshold, interactions with Contracts for Difference, implementation in coupled bidding zones, and a gas-cost variant for the 2022 energy crisis. |
| title | A Market Design Proposal for Decoupling Carbon and Electricity Prices |
| topic | General Economics Economics |
| url | https://arxiv.org/abs/2603.25874 |