Evaluating the impact of average cost based contractson the industrial sector in the European emissiontrading scheme

The inception of the Emission Trading System in Europe (EU-ETS) has made power price moreexpensive. This affects the competitiveness of electricity intensive industrial consumers and mayforce them to leave Europe. Taking up of a proposal of the industrial sector, we explore thepossible application of special contracts, based on the average cost pricing system, which wouldmitigate the impact of CO2 cost on their electricity price. The model supposes fixed generationcapacities. A companion paper treats the case with capacity expansion.We first consider a reference model representing a perfectly competitive market where allconsumers (households and industries) are price-takers and buy electricity at the short-runmarginal cost. We then change the market design assuming that large industrial consumers paypower either at a single or at a nodal average cost price.The analysis of these problems is conducted with simulation models applied to the NorthwesternEuropean market. The equilibrium models developed are implemented in the GAMS environment.....