Climate policy futures, energy markets, and technology: Implications for Norway

Abstract

This paper is part of the joint CICERO and Fridtjof Nansen Institute (FNI) project “Towards a cost-effective climate policy: The international framework and Norwegian policy framework” (“Mot en effektiv klimapolitikk: Internasjonale rammebetingelser og norsk virkemiddelbruk”). The project, financed by the Norwegian Research Council, started in 1999 and is poised to end in 2001. We explore two possible climate policy futures up to 2020. The first is a Climate-Stagnation scenario where the Kyoto Protocol does not enter into force, and the second is a Kyoto-Success scenario where the Kyoto Protocol enters into force and developing countries take on binding commitments to reduce their greenhouse gas emissions through a global burden-sharing scheme after 2012. We include a global oil and coal market and regional markets for gas. We argue that the two scenarios affect these international markets for fossil fuels and prices differently. In this paper, we first describe the analytical model we use, and then link different energy price paths to different paths of technological development, with a focus on scenarios from a European Commission study. Finally, we analyze both the economic implications for Norway through changes in oil and gas revenue, as well as implications for Norwegian climate policy formulation.