We can see that the response of the system is very sensitive to carbon price, with a substantial amount of coal generation being built with a carbon tax of $20/tCO2 and none being built at $30/tCO2.

Quest. 1) What is the cost of mitigation of a $20/tCO2 tax (relative to the default of $0/tCO2)?

Keep in mind that the increased electricity cost with a carbon tax is partially due to the construction of more expensive generators, and partially due to tax payments on any emissions from the remaining fossil generators. From society’s perspective, those tax payments will be used somewhere else in the economy and shouldn’t count towards the cost of mitigation. You will need to calculate the cost of electricity for the $20/tCO2 and $30/tCO2 cases with the cost of the carbon taxes taken out.

Quest. 2) What is the cost of mitigation of a $30/tCO2 tax (relative to the default of $0/tCO2)? Don't forget the reminder from above.

Answer rating: 100% (QA)

In the last decade the price of natural gas used for electricity generation has seen a net decrease The same is true for coal which has consistently been among the cheapest fuel types used in the powe... View the full answer