2002 World Congress of Environmental and Resource Economists

This paper studies the relevance of the strategic use of environmental policies for the European electricity sector, by focusing on unilateral distortions of a CO2 tax. We also investigate the presence of a strategic rationale for unilateral energy policy decisions, such as a nuclear phase-out or a subsidy on nuclear investments. Our model depicts production, investment and trade decisions for the electricity sectors of four European countries. Two market regimes are considered: Perfect Competition and Cournot Competition. We show that the appeal of unilateral environmental policy deviations depends on how environmental damages are considered in the governments’ objective functions. No strategic rationale was found for a unilateral nuclear phase-out: this policy could have an economic justification only in presence of very high external costs attached to nuclear electricity generation. Finally, we show that subsidizing this technology does not improve welfare, if this is financed using taxes accruing from the electricity sector.



	Paper Title:	The Opening Of The European Electricity Market And Environmental Policy: Does The Degree Of Competition Matter?
	Presenting Author:	Andrea Bigano (KULeuven)
	Coauthor 1:	Stef Proost
	Coauthor 2:
	Coauthor 3:
	Abstract:	This paper studies the relevance of the strategic use of environmental policies for the European electricity sector, by focusing on unilateral distortions of a CO2 tax. We also investigate the presence of a strategic rationale for unilateral energy policy decisions, such as a nuclear phase-out or a subsidy on nuclear investments. Our model depicts production, investment and trade decisions for the electricity sectors of four European countries. Two market regimes are considered: Perfect Competition and Cournot Competition. We show that the appeal of unilateral environmental policy deviations depends on how environmental damages are considered in the governments’ objective functions. No strategic rationale was found for a unilateral nuclear phase-out: this policy could have an economic justification only in presence of very high external costs attached to nuclear electricity generation. Finally, we show that subsidizing this technology does not improve welfare, if this is financed using taxes accruing from the electricity sector.
	Link to paper:	http://weber.ucsd.edu/~carsonvs/papers/602.pdf

	Session / Day / Time	9F / Wednesday / 8:00 - 10:00 am

	Please use your browser's "back" button to get to the previous page.