In this flagship, we consider emissions reductions in the ETS sectors. We concentrate our research on the power market, but we will also study other sectors. We aim to study and understand the driving forces behind the regulations and the choice of regulatory instruments in these sectors. Further, how they impact the Norwegian energy system and energy production, including investments in technologies and transmissions. We also study how regulations can be designed to ensure first-best or second-best investment decisions. Finally, we will study environmental costs of investments in the energy system.
This Flaship focus on five major themes:
- How can we accommodate rapidly increasing shares of intermittent energy sources (solar, wind) in the power mix?
- More intermittent electricity will require enhanced flexibility in other parts of the power market to ensure overall balance at all times: Where will this flexibility come from?
- Will the market provide sufficient incentives for flexibility or are special measures required?
- Are current regulations conducive to flexibility, or is there a need for reform?
Intermittent power generation will vary by time and place (e.g., wind, sun, weather), and will frequently be produced in areas that currently have limited transmission capacity. This will require more transmission capacity. Weather stochasticity may be reduced by increasing the capacity of interconnectors (such as the one between the Nordic countries and the rest of Europe). Also, more efficient use of existing transmission capacity is warranted.
- How can new transmission resources be mobilized?
- Are transmission system operators (TSOs) and regulators able and willing to facilitate development of transmission networks, in particular where cooperation across jurisdictions is required?
- Do current market conditions, in particular transmission tariffs, encourage efficient use of transmission networks, or are reforms required?
New technology – including renewable generation, batteries and information and communication technology – is rapidly changing the role, not only of distribution networks, but also of distribution system operators (DSOs).
- Are there barriers to the rolling out of new technologies?
- Do (distribution) tariffs and electricity prices encourage the adoption and efficient use of new technologies?
- What should be the role of DSOs, in particular in relation to other, new market players, such as suppliers of technology, service provides and middlemen (aggregators)?
- Does the current regulatory regime support efficient development of distributed electricity and storage?
Reductions of emissions in the ETS sectors may be achieved with different instruments, including emissions quotas and taxes, quality standards, subsidies to green energy sources and an outright ban on the use of certain resources.
- What is the experience with the various instruments?
- Are they equally efficient?
- To what extent should the choice of instrument depend on the underlying characteristics of regulated sectors?
- What motivates the different regulatory choices that governments make, across countries, sectors and types of emissions?
- Are there conflicts between stimulating renewable production and the local environment?
Carbon capture and storage may be necessary to contain global warming below 1.5 or 2 degrees, as is the current political ambition. Adoption of CCS technology in the power sector, however, has by far been behind predictions.
- Why has the technology not been implemented, and which policy instruments are available to raise adoption of this technology?
- What is the economic value of CCS-effort with regard to learning effects, CO2 reductions and the option of storage?
- What are the market imperfections in the three markets (capture, transport, storage) and what policies would target these imperfections?
- Can CCS be economically profitable without government support?
- What will the consequences for Norwegian industry (including oil and gas) be with and without CCS, given that we aim for the two-degree target?