For example, a “side-effect” of CO2 taxation is that it raises state revenues (energy taxes represent about 10% of the total tax revenue in Sweden). There are major tax disparities between member states. Other considerations in relation to the promotion of small-scale renewable electricity production are local or regional employment benefits, agricultural support, and reasons for developing sectoral competitive advantages and securing security of supply.
2.
This technique already exists today and the potential is major. However, the present cost is high (about $50 /ton CO2) although still lower than most renewables. Research and development could be expected to reduce costs. Vattenfall participates in several research projects in this field. Vattenfall also started a project in the beginning of 2001 aimed at developing CO2 sequestration technology at a competitive cost.
3.
A proposal for a new directive is currently under way (spring 2001)
4.
There are basically two ways to levy a CO2 tax on electricity. The tax is levied on either the production or the consumption of electricity. Both approaches have been applied within the EU. According to general economic theory, a tax should be applied as close as possible to the source of pollution, i.e. on the fuel for electricity production. CO2 taxation on the consumer side is not efficient. It only affects the overall electricity consumption. Fiscal taxes, however, are best levied on the consumption of electricity, as the income is more stable and the level can be adjusted depending on consumer type.
5.
It should be noted that the same argument is not necessarily valid for district heating. But high taxation on fossil fuels used for district heating can lead to problems in CHP plants. For example, an uneven taxation of heat and electricity does not reward the energy efficiency of CHP.
6.
This is a result of the combination of strict regulations for firing waste in other countries and high energy- and CO2 taxes in Sweden, which makes non-fossil fuel alternatives attractive. Swedish biofuel cannot compete with waste fuel prices.
7.
Vattenfall has been involved in R&D work on new sustainable energy solutions since the 1970s. The main aim of the work is to make a number of new energy solutions profitable enough to become viable business concepts. However, renewable electricity has not proved competitive enough for existing energy systems and there is a need for additional financial support if expansion is decided upon politically.
8.
Countries such as Denmark and Germany have access to relatively cheap abatement options, at a price of roughly 1 US cent/kg CO2. The cheapest measure for a country like Sweden is about five times higher. The differences depend on the existing power production mix, for example, or to what extent cheap CO2 emission reductions have already been exploited. Without emissions trading, the relative costs for Sweden will be high. It is also important to understand that all participating parties will profit from emissions trading. The profit for a single country or business sector or company depends on the difference in the level between individual marginal reduction costs and the overall equilibrium reduction costs.
9.
These figures are consistent with other estimations, for example, with those in a new comprehensive report by the Dutch consultant Ecofys for the European Commission (2001). “Economic Evaluation of Emission Reduction of Greenhouse Gases in the Energy Supply Sector in the EU – Bottom-up Analysis”.
10.
Even if a majority supports some kind of emissions trading, at least in a European context, there are still opponents. Their main argument is that the value of technological development has not been accounted for in an economic analysis. However, it is difficult to find support for this argument either in practice or in economic theory. The argument seems to be based on the assumption that market players (or at least some of them) cannot make economically rational decisions. In practice, however, market players always have the choice of reducing emissions or developing energy efficient technologies. They have not chosen to do so because they do not consider them profitable. In any case, if some actions were profitable, there are other measures besides restrictions on emissions trading that would create the right investments, for example, information campaigns.
