Tradable CO₂ permits in Danish and European energy policy

This report presents the results of the project “Tradable CO2 permits in Danish and European energy policy”. The project was financed by a grant from the Danish Energy Research Programme 1998 (Grant 1753/98-0002). The project was conducted in co-operation between Elsamprojekt A/S (project manager), Risø National Laboratory, Aarhus School of Business and I/S Eltra. The three major objectives of the project were:
• To identify and analyse the economical and political issues that are relevant with regard to the construction of a tradable CO₂ permit market as well as proposing a suitable design for a tradable CO₂ permit market for the energy sector in the EU. Experience from the tradable SO₂ permit market in the US is taken into consideration as well.
• To present an overview of price estimates of CO₂ and greenhouse gas permits in different models as well as discussing the assumptions leading to the different outcomes. Furthermore, the special role of backstop technologies in relation to permit prices is analysed.
• To analyse the connection between CO₂ permit prices and technology choice in the energy sector in the medium and longer term (i.e., 2010 and 2020) with a special emphasis on combined heat and power and renewables. In addition, the short-term effects on CO₂ emissions and electricity trade of introducing tradable CO₂ permit with limited coverage (i.e. a national system) as well as complete coverage (i.e. including all the countries) in the Nordic electricity system are analysed.