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arXiv · 2604.03076

Carbon cost pass-through rate in power system: evidence from Italy under the EU ETS

Pierdomenico Duttilo·Francesco Lisi
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Abstract

This paper investigates the impact of carbon pricing under the EU Emissions Trading System (EU ETS) on the Italian electricity market, focusing on the carbon cost pass-through rate (CPTR) across market zones during Phases 3 and 4 (2016-2024). Using daily data, the study applies an econometric framework based on a linear regression model with autoregressive dynamics to estimate the extent to which carbon costs are reflected in wholesale electricity prices. It further incorporates robustness checks and quantile regression to assess how the CPTR varies across different fuel spread levels. The results show that carbon costs are positively and significantly transmitted to electricity prices, confirming the relevance of carbon pricing as a key market driver. However, pass-through is incomplete, with CPTR values consistently below 100%. At the national level, the pass-through estimate is around 32%, with no statistically significant change between Phase 3 and Phase 4. Substantial heterogeneity emerges across market zones: pass-through increases in the North, Centre-North, and Sardinia during Phase 4, while it declines in the Centre-South and Sicily, reflecting differences in generation mix, carbon intensity, and market conditions. Overall, the findings highlight the importance of market zones factors in shaping the effectiveness of carbon pricing in electricity markets.

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Pierdomenico Duttilo, Francesco Lisi. 2026-04-03. Carbon cost pass-through rate in power system: evidence from Italy under the EU ETS. https://arxiv.org/abs/2604.03076

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