The objective of this paper is to review previous research on convergence of carbon dioxide emissions among countries. We discuss the key findings in this work, how the choices of model, data, statistical tests, etc. influence the results, and highlight some policy implications. The empirical research on convergence in per capita carbon dioxide emissions shows some evidence of convergence between developed (OECD) countries, while at the global level there appear to be relatively persistent gaps or divergence. These results are however sensitive to the choice of econometric approach and data set (e.g., the length of the time series). Still, the empirical basis for an egalitarian rule of equal per capita emissions in the design of global climate policy is not solid; it ignores the specific structural characteristics of countries such as climate, natural resource endowments, etc. The analysis therefore points to a need for more in-depth analyses of the structural determinants of carbon intensity (productivity) at the country level, as well as to additional research on the economic consequences of different types of equity principles (including combinations of such principles).

The purpose of this paper is to analyze: (a) the role and the nature of price-induced switching behavior between fossil fuels (i.e., coal, oil, and natural gas) in the western European power sector; as well as (b) the fuel choice impacts of a number of public policies implemented in this sector during the last 20 years. The analysis is conducted within a Generalized Leontief cost function framework, and employs pooled data across eight countries over the time period 1978–2004. We present short-run own- and cross-price elasticities of fossil fuel demand, and assess the impacts of a set of government policies implemented over this time period. The empirical results show evidence of notable short-run interfuel substitution between oil and gas, and particularly in countries where fossil fuels are used extensively for both base and peak load purposes. These findings support the notion that ex post fossil fuel substitution takes place in dual- and multi-fired plants, by switching load between different single-fuel fired plants, as well as through the conversion of power plants to be able to burn alternate fuels. The results also illustrate that different public policies – i.e., removal of coal subsidies, electricity market liberalization etc. – have had profound impacts on fossil fuel choices and have in particular favored power generation gas use at the expense of coal. Finally, the paper makes use of the empirical results to simulate the fuel switching impacts of different carbon prices within the European Emissions Trading Scheme (EU ETS).

The purpose of this study is to analyze how market and policy uncertainties affect the general profitability of new investments in the power sector, and investigate the associated investment timing and technology choices. We develop an economic model for new investments in three competing energy technologies in the Swedish electric power sector. The model takes into account the policy impacts of the EU ETS and the Swedish green certificate scheme. By simulating and modeling policy effects through stochastic prices the results suggest that bio-fuelled power is the most profitable technology choice in the presence of existing policy instruments and under our assumptions. The likelihood of choosing gas power increases over time at the expense of wind power due to the relative capital requirement per unit of output for these technologies. Overall the results indicate that the economic incentives to postpone investments into the future are significant.

The overall objective of this paper is to analyze the impact of climate policy and technology learning on future investments in the Swedish power sector. Methodologically we assess the lifetime engineering costs of different power generation technologies in Sweden, and analyze the impact of carbon pricing on the competitive cost position of these technologies under varying rate-of-return requirements. We also argue that technological learning in the Swedish power sector - not the least in the case of wind power - is strongly related to the presence of international learning and R&D spillovers, and for this reason capacity expansions abroad have important influences of the future cost of power generation in Sweden. The results suggest that renewable power will benefit from existing EU climate policy measures, but overall additional policy instruments (e.g., green certificate schemes) are also needed to stimulate the diffusion of renewable power. Moreover, under a recent European Commission scenario and using estimated learning rates for wind power and the combined cycle gas turbine (CCGT), wind power gains considerable competitive ground due to international technology learning impacts. These latter results are, however, very sensitive to the assumed learning-by-doing rates for wind power and CCGT, respectively.

The purpose of this paper is to discuss how the design of climate policy in a small open economy may affect the internalization of carbon-related external costs and ultimately the social choice between different power generation technologies. Empirically we focus on the Swedish case and analyze three climate policy regimes, out of which two represent different national goal formulations and thus compliance strategies. The results show that the social choice between power generation technologies in Sweden will be significantly influenced by the choice of climate policy regime. Most notably, if Sweden would abandon its present national target for carbon dioxide emissions and instead make full use of the country's participation in international emissions trading, natural gas-fired power would replace onshore wind power as the power generation source with the lowest social cost.

The purpose of this paper has been to analyse how increased market uncertainties affects the timing and technological choice of investment projects in the power sector with focus on the Swedish situation using two different investment behavioural assumptions. The investment model assumes stochastic input prices (fuel prices), output price (electricity) and emission permit price. In addition, the green certificate scheme presently used in Sweden is deterministically incorporated in the model. The technology choices included are offshore wind power, gas-fired power and biomass power. The results suggests that biopower is the most likely technology choice under both investment behavioural assumptions and regardless if investment timing, driven by the policies. The likelihood of choosing gas power increases over time and likelihood of choosing wind power decreases over time, driven by the relative capital requirements per unit of output for the two technologies. Wind power would benefit is a lower discount rate is used.

The overall purpose of this paper is to analyse how power generation technology choices will be affected by climate policy. Special attention is paid to the dissemination of renewable power technologies following climate policy initiatives in Sweden and Eastern Europe. An overall conclusion is that carbon policy will affect new investments in renewable power technologies in both Sweden and Eastern Europe, but it is difficult to provide a comprehensive assessment of the future power generation technology mix. In the Swedish case, it is suggested that in general it is not certain that compliance with the Kyoto commitments implies substantial increases in renewable power sources. If, therefore, renewable power sources are favoured for reasons beyond climate policy, additional policy instruments will be needed. In the Eastern European case it is indicated that although it is clear that the Eastern European countries are not homogeneous in terms of CO2 abatement potential and costs, no single country emerges as particularly low-cost. This may have important implications for future JI/CDM activities. For instance, risk factors such as policy uncertainty and institutional obstacles may become crucial in determining the future allocation of JI/CDM projects across the region.

This thesis consists of an introduction and six self-contained papers addressing the economics of electric power generation and climate policy. Paper I explores systematically the use of spatial econometric techniques in testing for convergence of CO2 emissions per capita across countries. Giving weight to spatial dependence in the data, our main findings suggest that there appears to be a spatial relationship in explaining environmental convergence. We find evidence for both sigma and conditional beta convergence of per capita CO2 emissions. Paper II discusses how the design of climate policy in a small open economy may affect the internalization of carbon-related external costs and ultimately the social choice between different power generation technologies. The results show that the social cost of power generation technologies in Sweden will be significantly influenced by the choice of climate policy regime. If Sweden would abandon its present national target for CO2 emissions and instead make full use of the country's participation in international emissions trading, natural gas-fired power would replace onshore wind power as the power generation source with the lowest social cost. Paper III analyzes the costs for reducing CO2 emissions in the power-generating sectors in Eastern Europe by using a linear programming model. The model takes into account the impact of technology learning and the underlying assumptions of the RAINS model. The results, based on a 15 percent reduction target for CO2 emissions, show that the marginal cost of switching to either a low-carbon or to a renewable energy source differs significantly among the countries. The results also indicate that the Eastern European countries are not homogeneous in terms of CO2 abatement potential and costs. This may have important implications for future JI activities. Risk factors such as policy uncertainty and institutional obstacles may become crucial in determining the future allocation of JI/CDM projects across the region. Paper IV analyzes the impact of climate policy and technology learning on future investments in the Swedish power sector. Methodologically we assess the lifetime engineering costs of different power-generating technologies in Sweden, and analyze the impact of carbon pricing on the competitive cost position of these technologies under varying rate-of-return requirements. We also argue that technological learning in the Swedish power sector is strongly related to the presence of inter-national learning and R&D spillovers. The results suggest that renewable power will benefit from existing EU climate policy measures, but overall additional policy instruments are also needed to stimulate the diffusion of renewable power. Moreover, wind power may gain considerable competitive ground due to international techno-logy learning impacts. Paper V analyzes how market and policy uncertainties affect the general profitability of new investments in the Swedish power sector, and investigate the associated investment timing and technology choices. We develop a simple economic model for new investments in power generation and by simulating and modeling policy effects through stochastic prices the results suggest that bio-fuelled power is the most profitable technology choice in the presence of existing policy instruments. The likelihood of choosing gas power increases over time at the expense of wind power due to the relative capital requirement per unit of output for these technologies. Overall the results indicate that the economic incentives to postpone investments into the future are significant. Finally, Paper VI analyzes the role and the nature of price-induced switching behavior between fossil fuels in the western European power sector, as well as the fuel choice impacts of a number of public policies implemented in this sector during the last 20 years. The analysis is conducted within a Generalized Leontief cost function framework. The empirical results indicate a rejection of the null hypo-thesis of zero ex post fuel substitution, and show evidence of notable short-run interfuel substitution between oil and gas. The results also illustrate that different public policies have had profound impacts on fossil fuel choices and they have in particular favored power generation gas use

The purpose of this paper is to analyze the costs for reducing CO2 emissions in the power-generating sectors in Croatia, the European part of Russia, Macedonia, Serbia and the Ukraine in 2020 by using a linear programming model. The model takes into account the impact of technology learning and is based on the underlying assumptions of the so-called RAINS model frequently used to assess the potential and the costs for reducing air pollution in Europe. The results based on an exogenously given 15 percent reduction target for CO2 emissions show that the marginal cost for switching from a carbon-intense fuel to either a low-carbon or to a renewable energy source differs significantly among the countries. The marginal costs range from 4 to 90€ per ton CO2, and are mainly due to country differences in the availability of renewables, existing technologies and costs. The results also indicate that although it is clear that the Eastern European countries are not homogeneous in terms of CO2 abatement potential and costs, no general conclusions can be made of the region. This may have important implications for future JI/CDM activities. For instance, risk factors such as policy uncertainty and institutional obstacles may become crucial in determining the future allocation of JI/CDM projects across the region.