Common Energy and Climate Strategies for the Nordic Countries - A Model Analysis

Doctoral thesis, 2003

Increased competition and market integration into a wider geographical context are currently on the energy- and climate-policy agenda in Northern Europe. It is likely that several energy-and environment-related markets will coexist within a near future, for example markets for electricity and emission permits for CO2. It is therefore important to increase the understanding of how this policy agenda may affect for example domestic policy-making and how the different energy-related markets interact. This thesis explores consequences of selected energy and climate strategies pursued jointly in the four Nordic countries Sweden, Norway, Finland and Denmark. More specifically, common Nordic markets for electricity, natural gas, tradable CO2-emission permits, and tradable green certificates have been examined. In analyzing these issues the energy systems in the four Nordic countries were modeled by using the energy systems models MARKAL and NELSON. It is shown in this thesis that increased cross-border cooperation and coordination are valuable under future climate-change mitigation policies. CO2-abatement costs may be significantly lowered if the emissions are reduced jointly among the Nordic countries instead of separately. Depending on the investment strategies for a trans-Nordic gas grid, this may also be a valuable option in a future that includes CO2-reduction targets. Correspondingly, a common Nordic market for tradable green certificates is also more cost-efficient than if each country has separate markets. This is explained by differences in existing systems and comparative advantages of new renewable electricity production. The interaction between the markets for electricity, tradable emission permits, and tradable green certificates is found to be substantial and complex. Even though increased cross-border energy-related trade and increased market integration in terms of extending the geographical boundary are cost-efficient under future climate-change mitigation policies, the importance of technological development is likely to be greater. This is indicated, for instance, in the case of wind power in a Nordic market for tradable green certificates.