EXPORT OF NORWEGIAN HYDROPOWER UNDER A COMMON EUROPEAN REGIME OF ENVIRONMENTAL TAXES

Along with the efforts of the European Union to introduce third party access (TPA) in the transmission of electricity, a new export market for Norwegian low-cost hydropower is being opened. Since the generation of hydropower is environmentally clean (ie producing no emission of CO2, SO2 etc), we would expect that Norwegian electricity could obtain a premium under a common European system of environmental taxes as compared to electricity based on coal, oil and natural gas. In this paper we set out to investigate the strategic position of Norwegian hydropower and, in particular, to study optimal decisions with respect to the installation of new export transmission lines. For this purpose, we construct an integrated long-run equilibrium model for the northern European electricity market determining production, consumption and trade.