Environmental Regulation Impacts on the Czech Power System by the Dynamic Linear Optimisation Model Message

The paper analyses impacts of environmental regulation on Czech power system. We employ MESSAGE modelling platform to construct a dynamic linear optimisation energy model of the Czech power system. We analyse regulation impacts on fuel use and CO2 emission, fuel-mix and technology-mix, induced investment and fuel and other O&M costs to generate electricity over the period 2006-2030. Negative external costs attributable to endogenously determined new level of air quality pollutants are quantified to make our cost-benefit analysis more complex. Overall, effects of four policy scenarios are assessed, including subsidies for renewable energy, increase in air quality charge rates and an introduction of the EU ETS in the Czech power system. Based on our simulation, we find that prospected 10-fold increase in charging of air quality pollutant would not have any significant effect on emission and would not bring any stimuli for change in technology and fuel mixes. Subsidy to renewable energy would result in their development; however, larger effect would appear in far future and only if new nuclear power units are not allowed to build. Auctioned EUA, especially above €15 per tonne of CO2, would be the only effective instrument with significant effects on power sector. Key factor on CO2 emission is whether scenario consists of new nuclear power units or these units are banned. Our simulation results hold even if we allow the key model assumption to vary, except, the discount rate that would have effect on whether more-investment intensive technologies are used to generate electricity.