The effect of inhomogeneous carbon prices on the cost-optimal design of a simplified European power system

Carbon prices are one of the most prominent methods to reduce global greenhouse gas emissions and have been adopted by several countries around the world. However, regionally different carbon prices can lead to carbon leakage. In this paper, a simplified European power system where carbon prices are varied with respect to GDP per capita is investigated. The findings show inhomogeneous carbon prices leading to significant carbon leakage due to coal-fired generation remaining a major source of power in Eastern Europe. From the results it can be concluded that inhomogeneous carbon prices are a potential risk for European long term decarbonisation targets.