The role of the carbon price signal on companies' investment decisions.

Summary This thesis focuses on the impact of the EU ETS on investment decisions in the European power sector. After a description of the EU ETS and other major developments, we discuss the main ways that compliance actors deal with the EU ETS constraint: emissions reductions, carbon asset acquisition, and other types of responses. We present the results of an empirical review of investments by the European power producers most constrained by the EU ETS. Investment decisions were driven more by strategic and economic considerations than by the introduction of a CO2 price. We discuss the impacts of these investments on the carbon compliance of European power producers: tons of CO2 potentially fixed by the investments, changes in compliance perimeters, but also carbon leakage and use of project mechanisms. Finally, we explore the impact of allowance pricing scenarios on the investment portfolios of power generation capacity. We show that: the EU ETS has a small but central role in reallocating investment portfolios . any indication of the long-run carbon price trend is very useful . some elements of the EU ETS have only a small effect on investment . carbon price expectations influence investment portfolio decisions . while the EU ETS plays a central role, it is the combination of emission reduction and other policies that matters most.