hide
Free keywords:
-
Abstract:
Recurring surges in natural gas prices strain climate policy by raising electricity prices, inducing gas-to-coal switching, prompting discretionary interventions, and fueling pressure to weaken decarbonization. We develop an empirical framework that quantifies how gas price spikes compromise climate policy and provides a toolkit to assess emissions trading system responses based on environmental effectiveness and their capacity to limit high electricity prices. Exploiting the gas price shock following Russia’s invasion of Ukraine, we estimate the impacts of gas prices on coal generation, CO2 emissions, and electricity prices across 13 EU countries using hourly electricity market data. We find that the EU’s gas price cap has limited effectiveness and instead propose a resilient rule-based emergency mechanism within the EU Emissions Trading System (EU ETS). A modest auction reserve price, automatically triggered when gas prices exceed historical benchmarks, can protect consumers while preserving decarbonization incentives and limiting the need for ad hoc interventions.
