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Liberalizing European Energy Markets

An Economic Analysis Finn Roar Aune, Research Department, Statistics Norway, Rolf Golombek, Sverre A.C. Kittelsen, The Ragnar Frisch Centre for Economic Research, Norway and Knut Einar Rosendahl, UMB School of Economics and Business Norway
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.
Extent: 328 pp
Hardback Price: $151.00 Web: $135.90
Publication Date: 2008
ISBN: 978 1 84376 374 1
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  • Economics and Finance
  • Economic Regulation and Governance
  • Energy Economics
  • Public Sector Economics
  • Environment
  • Environmental Economics
The vital importance of energy and the challenges associated with it necessitate the efficient structuring of energy markets and well-designed policies. 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.

This book centres on the effects of the liberalization of European energy markets, given that the liberalization process proceeds as the EU has proposed it. The process thus far has been slow, not least because of considerable resistance from key agents in the market, and the final outcome is not clear.

Graduate students and researchers in energy economics, numerical economic modeling and operational research will warmly welcome
Liberalizing European Energy Markets. It will also appeal to both energy policymakers and management in the energy industries of Europe.
‘. . . this book provides much food for thought. The authors have done a good job of summarising the extensive detail underlying their work, and have described their assumptions and conclusions very clearly. . . it provides a good starting point for debate about the future and the development of energy policy.’
– Gay Wenban-Smith, International Energy Law Review
Contents: 1. Introduction 2. The LIBEMOD 2000 Model 3. Short-Run Effects of Liberalization 4. Long-Run Effects of Liberalization 5. Robustness Analyses and Alternative Future Scenarios 6. Policies for Clean and Renewable Energy Production 7. Energy Liberalization in Russia Appendices References Index