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Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure

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  • Torstein Bye
  • Erling Erling Holmoy

Abstract

Increased transmission capacity and diminishing returns to scale in power production capacities have raised the opportunity cost of electricity in many countries. The resulting market changes have often been counteracted by policy, i.e. subsidized electricity prices to for instance energy intensive industries. Firm data, emphasizing cost heterogeneity, confirm that a large share of Norwegian energy intensive firms would not be profitable in the long run if they lose their present electricity subsidies. However, CGE estimates show that removing the subsidies allows a tax cut that is more than sufficient to bring about the changes in relative prices needed to restore internal and external balances.

Suggested Citation

  • Torstein Bye & Erling Erling Holmoy, 2010. "Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 177-198.
  • Handle: RePEc:aen:journl:2010v31-01-a08
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    Cited by:

    1. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2012. "Regulation and electricity market integration: When trade introduces inefficiencies," Energy Economics, Elsevier, vol. 34(2), pages 529-535.
    2. Bye Brita & Faehn Taran & Grünfeld Leo A., 2011. "Growth and Innovation Policy in a Small, Open Economy: Should You Stimulate Domestic R&D or Exports?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-41, July.
    3. Førsund, Finn R. & Vislie, Jon, 2016. "Leif Johansen on intra-industry structural change," Journal of Policy Modeling, Elsevier, vol. 38(3), pages 515-527.
    4. Førsund, Finn R. & Hjalmarsson, Lennart, 2008. "Dynamic Analysis of Structural Change and Productivity Measurement," Memorandum 27/2008, Oslo University, Department of Economics.
    5. Kiula, Olga & Markandya, Anil & Ščasný, Milan & Menkyna Tsuchimoto, Fusako, 2014. "The Economic and Environmental Effects of Taxing Air Pollutants and CO2: Lessons from a Study of the Czech Republic," MPRA Paper 66599, University Library of Munich, Germany, revised Oct 2015.

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    • F0 - International Economics - - General

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