PYSEUS: A Closed Optimization Framework Linking EU ETS Design and Long-Term PowerSystem Evolution

This paper examines how the institutional representation of the EU Emissions Trading System for stationary sources (ETS1) shapes conclusions for the European electricity sector. While many energy-system models approximate ETS1 as a pure quantity cap, ETS1 in practice combines the cap with rule-based quantity management through the Market Stability Reserve (MSR), including Total Number of Allowances in Circulation (TNAC)-linked auction-volume adjustments and cancellation. We implement two otherwise identical model variants of a European electricity-sector capacity expansion framework: a cap-only representation without intertemporal banking and a policy-consistent representation that captures MSR/TNAC dynamics. Using harmonized inputs and an aligned scenario set-up, we compare allowance-market outcomes and electricity-system responses in terms of generation, installed capacity, and investment timing. The results show that the cap-only abstraction shifts decarbonization and flexibility investment towards earlier periods, leading to earlier renewable and storage build-out and higher electricity-system requirements through earlier deployment of electricity-intensive options. ... mehrBy contrast, MSR-consistent quantity management reallocates adjustment pressure across time, increases the interim role of dispatchable capacity in the 2030s, and yields a delayed catch-up in investment that partially converges by mid-century. These findings highlight that modelling ETS1 as a pure cap can bias inferences on the timing and composition of power-sector transitions.