EU-ETS under attack? The impact of carbon price suppression on the decarbonization of the power sector

Ongoing debates in European countries regarding policies to mitigate rising energy costs, while simultaneously pursuing decarbonization and electrification goals, are prompting legislative proposals that could impact existing carbon pricing mechanisms. A specific case in Italy, the 'Decreto Bollette' package, proposes removing the carbon price equivalent from bids of certain gas-driven power plants in wholesale electricity markets. This research aims to analyze the long-term implications of such carbon price suppression on investment, emissions, and consumer costs within the power sector.

Why it matters

The proposed policy changes, such as the suppression of carbon prices, could significantly alter economic incentives for decarbonization within the energy sector. This directly impacts long-term strategic planning for investment in sustainable infrastructure and managing national emissions targets, while also affecting consumer energy costs and market stability.

Key insights

• European countries are deliberating policies to address increased energy costs amidst geopolitical tensions.
• Decarbonization and electrification remain ongoing policy objectives alongside energy cost mitigation.
• Italy's 'Decreto Bollette' package (2026) is a case study proposing to remove carbon price equivalents from gas power plant bids.
• The research will assess the long-term impacts of carbon price suppression on investment, emissions, and consumer costs.
• The study utilizes a stylized Italian power system and the MARLEY multi-agent reinforcement learning framework.

Source

arXiv — Computers and Society — https://arxiv.org/abs/2608.12363