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Is electricity more important than natural gas? Partial liberalizations of the Western European energy markets

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  • Golombek, Rolf
  • Brekke, Kjell Arne
  • Kittelsen, Sverre A.C.

Abstract

The European Union has introduced directives that aim to liberalize and integrate electricity and gas markets in Western Europe. While progress has been made, there have also been setbacks, partly because of concerns about national interests and security of supply. This may call for an EU medium-term strategy to implement and enforce liberalizations in only selected parts of the energy industry. We use a numerical model to assess what types of liberalization – electricity vs. natural gas; domestic markets vs. international trade – are most influential in decreasing prices and increasing welfare in Western Europe. As part of identifying effects of different types of liberalizations, we present a method for calibrating the magnitude of deviations from the hypothetical competitive outcome in different parts of the energy industry in Western Europe. We find that a liberalization of electricity markets has greater quantity and welfare effects than a liberalization of gas markets, and that liberalizations of domestic energy markets have (overall) greater effects than liberalizations of trade in energy between Western European countries. Finally, the short-run effects essentially parallel the long-run effects, though they are significantly smaller.

Suggested Citation

  • Golombek, Rolf & Brekke, Kjell Arne & Kittelsen, Sverre A.C., 2013. "Is electricity more important than natural gas? Partial liberalizations of the Western European energy markets," Economic Modelling, Elsevier, vol. 35(C), pages 99-111.
  • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:99-111
    DOI: 10.1016/j.econmod.2013.06.023
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    References listed on IDEAS

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    Cited by:

    1. Finn Roar Aune, Rolf Golombek , Arild Moe, Knut Einar Rosendahl and Hilde Hallre Le Tissier, 2015. "Liberalizing Russian Gas Markets - An Economic Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).
    2. Rolf Golombek & Kjell Arne Brekke & Michal Kaut & Sverre A.C. Kittelsen & Stein W. Wallace, 2016. "Stochastic equilibrium modeling: The Impact of Uncertainty on the European Energy Market," EcoMod2016 9201, EcoMod.
    3. Biancini, Sara, 2018. "Regulating national firms in a common market under asymmetric information," Economic Modelling, Elsevier, vol. 68(C), pages 450-460.
    4. Huppmann, Daniel & Egging, Ruud, 2014. "Market power, fuel substitution and infrastructure – A large-scale equilibrium model of global energy markets," Energy, Elsevier, vol. 75(C), pages 483-500.
    5. Sheikhi, Aras & Bahrami, Shahab & Ranjbar, Ali Mohammad, 2015. "An autonomous demand response program for electricity and natural gas networks in smart energy hubs," Energy, Elsevier, vol. 89(C), pages 490-499.
    6. Ringkjøb, Hans-Kristian & Haugan, Peter M. & Solbrekke, Ida Marie, 2018. "A review of modelling tools for energy and electricity systems with large shares of variable renewables," Renewable and Sustainable Energy Reviews, Elsevier, vol. 96(C), pages 440-459.

    More about this item

    Keywords

    Energy markets; Liberalization; Price discrimination; Resource rent;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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