Decoupling of CO2 Emissions from Energy Intensive Industries

This report shows that a decoupling between economic growth, expressed as gross value added, and CO2 emissions has been achieved in the period from 1990-2001 in many energy-intensive and less energy-intensive sectors across the Nordic countries. The report investigates the impact of prices and taxes on the trends in CO2 emissions on the basis of a novel method that relies on sector-specific energy prices. Whereas previous research has been unable to account for the implications of complex tax exemptions and price discounts, the present report bridges the gap and provides innovative estimates for own-price and cross-price elasticities of the individual fuels. Whereas elasticities for electricity and gas are found to be moderate, the own-price elasticity for oil, coal and waste is relatively high (-0.4 to -0.6), indicating that consumption of these fuels is relatively price elastic. This finding suggests that price increases, whether induced by taxes or market fluctuations, can be effective in curbing CO2 emissions when they accurately reflect the CO2 burden. It also suggests that CO2-specific taxes on fuels are more effective than end-user electricity taxes which do not reflect actual emissions.