Deregulation of the Nordic power market and environmental policy

A common Nordic power market will reduce total CO2 emissions in the Nordic countries as compared to a situation of autarky and, thus, reduce the aggre gate cost of complying to strict national CO2 emission targets. A common ma rket for CO2 emission permits may reduce the aggregate cost further, but th is cost reduction will be smaller the harsher the CO2 emission constraints are. The economic gain of introducing a common Nordic power market will be particularly large in the case of a Swedish nuclear power phase out. In thi s case, the cost reduction of introducing a common market for CO2 emission permits will not be very large. (C) 1999 Elsevier Science B.V. All rights r eserved. JEL classlfcations: C61; F11; F14; L94; Q41.