The Kyoto Agreement Consequences for Nordic Electricity Markets

Abstract:

The Kyoto agreement changes the basic conditions for use of fossil fuels and by that the Nordic electricity markets. This paper describes, by using an equilibrium model the future perspectives for the Nordic electricity markets of meeting the Kyoto targets. It turns out that strict regulation is necessary. The shadow value on the emission constraint is rapidly increasing until 2010, the target year for the Kyoto agreement. Also the electricity price will be significantly higher under the Kyoto agreement. Emission permits will, if allowed, be widely traded among the countries. If permit trading is not possible, trading of electricity serves in some cases as a substitute. Other models have been used for similar analyses. A rough comparison reveals that quantitative differences can be explained by differences in which elements that are included in the models.