Quantifying the net cost of a carbon price floor in Germany

The German energy and climate policy mix is failing to decarbonize electricity production until now, with only 6% overall CO2 emissions reductions since 2005. Using empirical methods and hourly market data, we estimate the aggregate supply curve of the German power market and simulate the effect of a 20€/tCO2 and 40€/tCO2 carbon price floor on the German power market and on the renewable subsidy scheme. With the 40€/tCO2 carbon price floor, median prices increase by 37€/MWh and average price peaks by 50€/MWh. At the wholesale level, the market's annual volume increases by some €18 billion to €39 billion. At the retail level, however, the net cost to consumers is moderated due to costs savings from the renewable subsidy scheme worth some €4 billion, or roughly one-fifth. The same ratio applies to a price floor at 20€/tCO2.