Modelling a sector undergoing structural change: The case of Danish energysupply

This paper examines structural change in the power and heat producing secto r (energy supply) and its implications for the economy. An integrated appro ach is used to describe the interactions between this sector and the rest o f the economy. Thus, a very detailed model of the sector for Denmark has be en linked to a macroeconometric model of the Danish economy. It is argued t hat analysing sectors that undergo radical changes, for example the energy supply sector, should be undertaken by using a model that describes the tec hnological and organisational changes in production along with implications for the demand of the produced goods. Environmental priorities and targets for emission reductions are important for defining energy policy in Denmark. As the energy supply sector at prese nt is a major contributor to emissions of CO2 and SO2, knowledge of this se ctor is vital for reducing these emissions. It is shown that quite substant ial emission reductions are possible without encountering a substantial neg ative impact on the economy. The reduction potential through such economic incentives as fuel taxes is shown to be very sensitive to the technology us ed at present and in the future. This study also emphasises that the large reduction potential of emissions from the energy supply sector is a one-time gain. Fuel switching and increa sing use of wind power cannot be repeated. Scenarios carried out with the c ombined model show that emission reduction in the energy supply sector will decrease the share of this sector in total emissions remarkably, and that the importance of the sector as a key element in any overall emission reduc tion strategy will decline.