Liberalizing European Energy Markets
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Liberalizing European Energy Markets

An Economic Analysis

Finn Roar Aune, Rolf Golombek, Sverre A.C. Kittelsen and Knut Einar Rosendahl

This book presents an economic analysis of the main effects of liberalizing the electricity and natural gas markets across Western Europe. It is based on a state-of-the art detailed numerical simulation model that takes account of the interlinkages between different energy markets. Short-run and long-run effects are identified and the robustness of results is tested. Separate chapters discuss climate policy, renewable energy and the role of Russia. A key finding is that liberalization lowers energy prices and increases consumption, particularly in the electricity markets where prices fall by 25 per cent on average in the short run. Effects are somewhat stronger in the long run, as investment options are utilized. The welfare benefits of liberalization are considerable in the long run. However, liberalization increases emissions of CO2. The welfare costs of fulfilling Western Europe’s Kyoto obligations depend highly on the policies implemented, but are at least as large as the benefits of liberalization.
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Appendix B: Model Data

Finn Roar Aune, Rolf Golombek, Sverre A.C. Kittelsen and Knut Einar Rosendahl


In this Appendix, we describe the data sources used to calibrate the model. In each subsection, we first describe data used to calibrate the short-run version of the model, and then we describe the data used in the long-run version. The base year of the model is 2000, and all prices and costs are measured in 2000 USD. B.1 END-USER DEMAND There are 16 model countries; Austria, Belgium (including Luxembourg), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and United Kingdom (UK). In addition, there is supply and demand for some goods in Algeria, Australia, Canada, China, COVE (Colombia and Venezuela), Indonesia, Poland, Russia, South Africa, Ukraine, the United States of America, ‘Rest of Annex B’ (Bulgaria, Estonia, Hungary, Iceland, Japan, Latvia, Lithuania, Croatia, New Zealand, Romania, Slovakia, Slovenia and Czech Republic),1 ‘Rest of the OECD’ (Korea, Mexico and Turkey), and ROW (rest of world). That is, all countries in the world are included. Period Length Fossil fuels are traded in annual markets, whereas electricity is traded in two season markets (summer and winter), and each season consists of six periods (starting at 07:00, 09:00, 13:00, 16:00, 20:00 and 00:00). The length of each period is specified to capture demand variations throughout the day. By assumption, each season is six months long. Quantities Demand in each model country is divided into three end-user groups or sectors, denoted ‘household’, ‘industry’ and ‘transport’. Household demand covers services and agriculture in...

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