DRAFT<br/><br/>Keywords: electricity, climate policy, decisions under uncertainty, start and stop costs<br/><br/>Changes of price and cost structure are likely to influence the production decision of a power producer. Climate policies influence both power prices and costs of power production. This paper analyses how climate policies influence the power producer's production decision in the short term, when the intertemporal production constraints (start and stop costs) are taken into account. The main result is that increased price variation reduces the flexibility of the producer. As the start-up threshold increases and stopping threshold decreases, the wedge between the threshold prices increases. Higher power price is needed before an idle producer starts to produce, and the power price can drop to a lower level before an active producer stops operation.<br/>Thus, the producer is likely to remain in the current state longer.<br/>However, the effect tapers off as the price variation increases. The lower the initial start-up costs, the less is the impact of increased price variation.