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Liberalizing the energy markets of Western Europe - a computable equilibrium model approach

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  • Finn Roar Aune
  • Rolf Golombek
  • Sverre Kittelsen
  • Knut Einar Rosendahl

Abstract

Using a computable equilibrium model, the short-run effects of a radical liberalization of the West European natural gas and electricity markets are examined. In each model country, oil, gas, coal and electricity are produced, traded and consumed. There are world markets for oil and coal, and well-integrated competitive markets for gas and electricity in Western Europe. Gas and electricity are transported and traded across markets under the assumption of ideal third-party access regimes for transportation and limited capacities in the transportation networks. It is found that relative to the data year 1996, radical liberalization reduces the average end-user price of natural gas by around 20%, and the average end-user price of electricity by around 50%. The supply of electricity increases by around 20%, mainly due to increased coal power production. After such liberalization, coal power emerges with the largest market share of electricity production in Western Europe.

Suggested Citation

  • Finn Roar Aune & Rolf Golombek & Sverre Kittelsen & Knut Einar Rosendahl, 2004. "Liberalizing the energy markets of Western Europe - a computable equilibrium model approach," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2137-2149.
  • Handle: RePEc:taf:applec:v:36:y:2004:i:19:p:2137-2149
    DOI: 10.1080/00036840310001641742
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    1. Bo Andersson & Lars Bergman, 1995. "Market Structure and the Price of Electricity: An Ex Ante Analysis of the Deregulated Swedish Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 97-110.
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    4. Bergman, Lars & Andersson, Bo, 1995. "Market Structure and the Price of Electricity: An ex ante Analysis of the deregulated Swedish Electricity Market," SSE/EFI Working Paper Series in Economics and Finance 47, Stockholm School of Economics.
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    Cited by:

    1. 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.
    2. Lars Lindholt, 2005. "Beyond Kyoto: backstop technologies and endogenous prices on CO2 permits and fossil fuels," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 2019-2036.
    3. Egging, Ruud & Gabriel, Steven A. & Holz, Franziska & Zhuang, Jifang, 2008. "A complementarity model for the European natural gas market," Energy Policy, Elsevier, vol. 36(7), pages 2385-2414, July.
    4. Eirik Lund Sagen & Finn Roar Aune, 2004. "The Future European Natural Gas Market - are lower gas prices attainable?," Discussion Papers 379, Statistics Norway, Research Department.
    5. Finn Aune & Rolf Golombek & Sverre Kittelsen, 2004. "Does Increased Extraction of Natural Gas Reduce Carbon Emissions?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 29(4), pages 379-400, December.
    6. Clemens Haftendorn & Franziska Holz, 2008. "Analysis of the World Market for Steam Coal Using a Complementarity Model," Discussion Papers of DIW Berlin 818, DIW Berlin, German Institute for Economic Research.
    7. 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.
    8. GOLOMBEK Rolf & KITTELSEN Sverre, "undated". "Long-run Effects of Liberalising the Energy Markets in Western Europe," EcoMod2003 330700063, EcoMod.

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