Abstract
Agreements on emissions of CO 2 change the basic conditions for use of fossil fuels and by that the electricity markets. This paper describes, by using an equilibrium model, the challenge of meeting the Kyoto target and how the recently liberalised energy markets can help easing the joint target of the Nordic countries, Denmark, Norway, Sweden and Finland. Electricity trade serves in some cases as a substitute if emission trading is not allowed, but can even if permit trading is possible reduce marginal emission reduction costs further. The costs of meeting the Kyoto target differ among countries owing to different targets and different reduction costs. The analyses indicate that Denmark and Norway in terms of marginal reduction costs have accepted higher costs than Sweden and Finland.
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