Jens Hauch

The Secretariat of the Danish Economic Council and
Institute of Economics, University of Copenhagen

Working Paper 1999:6

Abstract
Marginal costs of reducing emissions of CO2 differ among countries. Some countries have a low emission level and by that high marginal reduction costs while the opposite is true for some other countries. Also geographical and technological differences affect the costs of emission reduction. Reduction costs in the Nordic countries are estimated here using the multi country equilibrium model Elephant. Denmark and Finland can reduce emissions from electricity production which gives relatively low reduction costs. Sweden and Norway have an almost emission free electricity production which implies that emissions must be reduced elsewhere at higher costs. If the focus is on total Nordic emissions rather than national, costs are minimized by international trading of emission permits. If also international trade of electricity is possible, emission reduction costs are reduced further for emission reductions of "medium" size. Free electricity trade can therefore be an environmental advantage.

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