Lars Bergman

General equilibrium effects of environmental policy: A CGE-modeling approach

Estimation of emission control cost functions is often carried out in a partial equilibrium framework, i.e., under the assumption that emission control measures have negligible effects on input and output prices. In this paper a computable general equilibrium model is used for simulation of the impact on factor prices and resource allocation of reductions of SOinfxsup-, NOinfxsu-and CO2-emissions. Thus the model includes markets for tradable emission permits, and the equilibrium prices of permits reflect the marginal costs of emission control. The results suggest that major emission reductions are likely to have general equilibrium effects, and thus that emission control cost functions that fail to take these effects into account may give a distorted picture of the economic impact of emission control.

Energy Policy Modeling: A survey of general equilibrium approaches

Abstract Public concern about the economic impact of changing energy supply conditions has induced the development of energy-economy models based essentially on general equilibrium theory and the neoclassical theory of economic growth. These models are capable of elucidating the adjustment of energy consumption, through changes in factor proportions and sectoral output levels, resulting from changing energy prices. A survey of relevant simulation results suggests that quite dramatic changes in long-run energy consumption patterns can take place without a significant negative impact on economic growth.

Green Certificates and Market Power on the Nordic Power Market

The purpose of this study is to elucidate under which circumstances, how, and to what extent market power on the TGC market can be used to affect the entire electricity market. There are basically two reasons for being concerned with market power in TGC markets. One is that a small number of companies may have exclusive access to first rate sites for wind power generation. The other is that withdrawal of a small number of TGCs implies a multiple reduction of electricity consumption, with corresponding increases of end user prices. For the purpose of investigating the principles by which market power may be exercised in this setting a simple analytical model is designed and analytical results are derived. To investigate matters further a numerical model, based on the analytical model, is constructed for the Nordic countries. Among the Nordic countries only Sweden has a TGC market but there is a common Nordic electricity market with free trade of electricity. The analysis shows that Swedish companies possessing capacity for green electricity generation, indeed, have the ability to exercise market power on the common Nordic power market by withholding TGCs. However, the analysis reveals that an opening of TGC trade between the the Nordic countries to a large extent achieves the objective of eliminating the use of marketpower that would otherwise be established. Also, this may have a cushioning effect on the volatility of TGC prices.

Extensions and Applications of the MSG-Model: A Brief Survey

Publisher Summary This chapter focuses on the extensions and applications of the multi-sectoral growth model, or the so-called MSG-model. In this model, the sectoral allocation of resources and sectoral output rates are determined by the interplay of profit-maximizing producers and utility-maximizing consumers in competitive markets. The relative prices and quantities are simultaneously determined in the MSG-model, whereas input-output and linear programming type of resource allocation models typically determines equilibrium quantities at given relative prices or vice versa. However, the challenge provided by the MSG-model to later model builders stems to a large extent from its incompleteness. While the MSG-model allows price-induced substitution between inputs, the substitutability is restricted to capital and labor. Consequently, intermediate inputs, such as energy and materials are used in fixed proportions, that is, in the usual input-output fashion. Although, the MSG-model endogenously determines factor prices, it only distinguishes one type of labor and one aggregated household sector. As a result, the income distribution aspects of endogenously determined resource allocation patterns are essentially neglected. The MSG-model is an approximation of a largely unknown model and the exogenous wage and profitability structures are regarded as shorthand representations of phenomena that cannot be explained within the model.

A system of computable general equilibrium models for a small open economy

Abstract In this article a system of computable general equilibrium models for a small open economy is presented. One of the models is intended for analysis of “long-run” resource allocation problems. It is a static model in which the economys endowments of capital and labor can be reallocated among the production sectors in response to, for instance, changes in world market conditions. The other model is a dynamic model, elucidating certain aspects of the economys development from a “short-run” equilibrium in the direction of a “long-run” equilibrium as determined by the static model. In the article, the models are also used to analyze the impact on the Swedish economy of a 50% increase in the cost of electricity.

The Deregulated Electricity Markets in Norway and Sweden: A Tentative Assessment

This book focuses on the diversity of electricity reforms in Western Europe, drawing evidence from ten European Union memberstates plus Norway and Switzerland as associate members. The contributors analyse the various ways of introducing competition in the European electricity industries, and consider both the strategies of electricity companies and their behaviour in electricity marketplaces. They also offer an explanation of the differences of reforms by the institutions and the industrial structures of each country which shape the types of marketrules, industrial restructuring and public service regulations which have been adopted.

The Efficiency-Flexibility Trade-Off and the Cost of Unexpected Oil Price Increases

The starting point for this article is the notion of a possible trade-off between static efficiency and ex post flexibility of input proportions. It is found that under reasonable assumptions, plants designed for a single input price constellation can be made more efficient than those designed for a variety of input price constallations. In order to obtain an estimate of the economic significance of flexible input proportions ex post, a simulation model of the general equilibrium type is used to analyze the impact of unexpected oil price increases. The results indicate that, compared to a case with rigid technology, the social cost of an oil price increase is significantly lower when the technology is flexible. However, other rigidities, e.g. on the labor market, seem to be more significant than technological rigidities in this context.

Oil Price Increases and Macroeconomic Instability: General Equilibrium Calculations on the Basis of Swedish Data

Like its global counterpart, the Swedish energy system has been in a state of continual transition since the beginning of industrialisation. As can be seen in Figure 9.1, wood was the main energy source when Sweden entered the industrial era in the middle of the nineteenth century. It remained so for some time, but was then succeeded by coal, which in terms of energy market share, reached its peak around 1900.

The Nordic Electricity Market

Publisher Summary This chapter provides an overview of the evolution and subsequent expansion of the Nordic market—encompassing Denmark, Finland, Norway, and Sweden, and considered among the most successful competitive markets in the world. The Nordic market experienced and survived a severe hydro shortage during 2002–2003, where reservoirs in the hydro-dominated system fell to unprecedented low levels. But despite this natural shock, the market held together, without mandatory rationing, blackouts, price manipulation, or major financial ruin of any of the players. This, in contrast to other markets is an important hallmark of the Nordic market. However, fears regarding supply, security, and adequacy are likely to be unfounded. Nevertheless, as inherited overcapacity is eroded and new market-based environmental regulation takes effect, tighter market conditions are to be expected. It is then crucial that retail markets be fully developed to allow consumers to adequately protect themselves from occurrences of price spikes. There seems to be four main factors explaining this: 1) the market design of the Nordic market is simple but sound and to a large extent made possible by the large share of hydropower, 2) dilution of market power, attained by the integration of the four national markets into a single Nordic market, has been rather successful, 3) there has been a strong political support for a market-based electricity supply system without intervention in the market mechanisms in stressful situations, 4) the Nordic power industry seems to have a strong voluntary informal commitment to public service.This chapter provides an overview of the evolution and subsequent expansion of the Nordic market—encompassing Denmark, Finland, Norway, and Sweden, and considered among the most successful competitive markets in the world. The Nordic market experienced and survived a severe hydro shortage during 2002–2003, where reservoirs in the hydro-dominated system fell to unprecedented low levels. But despite this natural shock, the market held together, without mandatory rationing, blackouts, price manipulation, or major financial ruin of any of the players. This, in contrast to other markets is an important hallmark of the Nordic market. However, fears regarding supply, security, and adequacy are likely to be unfounded. Nevertheless, as inherited overcapacity is eroded and new market-based environmental regulation takes effect, tighter market conditions are to be expected. It is then crucial that retail markets be fully developed to allow consumers to adequately protect themselves from occurrences of price spikes. There seems to be four main factors explaining this: 1) the market design of the Nordic market is simple but sound and to a large extent made possible by the large share of hydropower, 2) dilution of market power, attained by the integration of the four national markets into a single Nordic market, has been rather successful, 3) there has been a strong political support for a market-based electricity supply system without intervention in the market mechanisms in stressful situations, 4) the Nordic power industry seems to have a strong voluntary informal commitment to public service.

The Nordic Electricity Market: Robust by Design?1

Publisher Summary This chapter provides an overview of the evolution and subsequent expansion of the Nordic market—encompassing Denmark, Finland, Norway, and Sweden, and considered among the most successful competitive markets in the world. The Nordic market experienced and survived a severe hydro shortage during 2002–2003, where reservoirs in the hydro-dominated system fell to unprecedented low levels. But despite this natural shock, the market held together, without mandatory rationing, blackouts, price manipulation, or major financial ruin of any of the players. This, in contrast to other markets is an important hallmark of the Nordic market. However, fears regarding supply, security, and adequacy are likely to be unfounded. Nevertheless, as inherited overcapacity is eroded and new market-based environmental regulation takes effect, tighter market conditions are to be expected. It is then crucial that retail markets be fully developed to allow consumers to adequately protect themselves from occurrences of price spikes. There seems to be four main factors explaining this: 1) the market design of the Nordic market is simple but sound and to a large extent made possible by the large share of hydropower, 2) dilution of market power, attained by the integration of the four national markets into a single Nordic market, has been rather successful, 3) there has been a strong political support for a market-based electricity supply system without intervention in the market mechanisms in stressful situations, 4) the Nordic power industry seems to have a strong voluntary informal commitment to public service.This chapter provides an overview of the evolution and subsequent expansion of the Nordic market—encompassing Denmark, Finland, Norway, and Sweden, and considered among the most successful competitive markets in the world. The Nordic market experienced and survived a severe hydro shortage during 2002–2003, where reservoirs in the hydro-dominated system fell to unprecedented low levels. But despite this natural shock, the market held together, without mandatory rationing, blackouts, price manipulation, or major financial ruin of any of the players. This, in contrast to other markets is an important hallmark of the Nordic market. However, fears regarding supply, security, and adequacy are likely to be unfounded. Nevertheless, as inherited overcapacity is eroded and new market-based environmental regulation takes effect, tighter market conditions are to be expected. It is then crucial that retail markets be fully developed to allow consumers to adequately protect themselves from occurrences of price spikes. There seems to be four main factors explaining this: 1) the market design of the Nordic market is simple but sound and to a large extent made possible by the large share of hydropower, 2) dilution of market power, attained by the integration of the four national markets into a single Nordic market, has been rather successful, 3) there has been a strong political support for a market-based electricity supply system without intervention in the market mechanisms in stressful situations, 4) the Nordic power industry seems to have a strong voluntary informal commitment to public service.