How a change in electricity prices affect CO2 emissions

During 2021, Europe witnessed soaring electricity prices. To help out households, governments across the continent introduced a variety of policy measures. Cuts in electricity taxes, direct payments to vulnerable households, support schemes and price caps are among the tools being used to dampen the liabilities of European consumers. This thesis analyses how the policy measures implemented and discussed in Norway affect CO2 emissions. Given international trade of electricity, this thesis evaluate the policy impact in the context of the European power market. CO2 emissions from Norwegian consumption of electricity is calculated using both a market-based and a location-based method. For market-based calculations, energy certificates, or guarantees of origin in the case of Norway, are used to disclose the energy source of consumed electricity. The location-based calculations on the other hand are based upon the physical delivery electricity in Norway. By performing a two-stage least squares regression (2SLS), the price elasticity of Norwegian electricity consumption is estimated. Combining the results on CO2 emissions and price elasticity,this thesis estimate how different Norwegian energy policy measures will affect CO2 emissions. Among the results, it is estimated that a removal of the electricity fee and a 50 øre/kWh price cap on electricity will increase CO2 emissions by respectively 247 629 and 186 494 tCO2e with the market-based CO2 emissions calculation. If calculated with the location-based CO2 factor, these two policy measures would respectively result in an 8 428 and 6 347 tCO2e increase in emissions yearl