Optimal Abandonment of Coal-Fired Stations in the EU

The study investigates the optimal abandonment of coal-fired power plants in the EU, considering uncertainties in coal, gas, and CO2 emission allowance prices. Using a three-dimensional binomial lattice, the authors find that abandonment is unlikely unless CO2 prices reach very high levels, particularly because plants can operate as peaking units. The decision is heavily influenced by the plant's remaining lifetime, thermal efficiency, and the volatility of carbon prices.

• The ability of coal-fired plants to operate as peaking units—running only when demand is high and conditions are favorable—significantly delays abandonment. Without this flexibility, the trigger CO2 price for a plant with a 10-year remaining life drops from €162.40/tCO2 to €45.6/tCO2.
• High volatility in CO2 allowance prices negatively affects the abandonment option and delays the closure of plants. This is because operators can produce when prices are low and simply wait (assuming only fixed costs) when prices are high.
• Higher expected growth rates (drift) in future CO2 allowance prices lower the threshold price required to trigger abandonment. For a plant with a 5-year remaining life and volatility below 0.3, a 20% growth expectation can trigger abandonment at prices around €30/tCO2.
• The residual (salvage) value of the plant influences the abandonment trigger; a higher residual value lowers the CO2 price required to justify closing the plant.

APA

Abadie, L. M., González-Eguino, M., & Chamorro, J. M. (2010). Optimal Abandonment of Coal-Fired Stations in the EU. Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201005260538411961619361.pdf

Chicago

Abadie, Luis M., Mikel González-Eguino, and José M. Chamorro. Optimal Abandonment of Coal-Fired Stations in the EU. Basque Centre for Climate Change, 2010. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201005260538411961619361.pdf.

Wikipedia

{{cite report |last1=Abadie |first1=Luis M. |last2=González-Eguino |first2=Mikel |last3=Chamorro |first3=José M. |title=Optimal Abandonment of Coal-Fired Stations in the EU |publisher=Basque Centre for Climate Change |date=May 2010 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201005260538411961619361.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{abadie2010optimal, author = {Abadie, Luis M. and González-Eguino, Mikel and Chamorro, José M.}, title = {{Optimal Abandonment of Coal-Fired Stations in the EU}}, institution = {Basque Centre for Climate Change}, year = {2010}, month = may, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201005260538411961619361.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }