Relationship between CO2, fuel and electricity prices and the effect on Green House Gas (GHG) emissions in Nordic countries

The European Union emissions trading scheme (EU ETS) has rea-ched the end of the first phase (2005 to 2007) and the market has moved on to the next phase, which runs from 2008 to 2012. This report is divided into two main parts. The part first looks back at the evidence to date to assess what effect the EU ETS has had on power prices and emission levels in the Nordic region. The report provides a description of the EU ETS and shows how the Nordic countries have fared so far in terms of their emission levels relative to their allocations. The report looks at the level of pass-through of CO2 costs into power prices, the price drivers and price levels in the Nordic region as well as the effect on the level of emissions from the sectors cov-ered by the EU ETS due to both weather and fuel price considera-tions. The first part is concluded by looking at the key lessons learned from phase 1, which inform the modelling and forecasts described in the second part of the report. The second part of the report looks at phase 2 and provides infor-mation on the market fundamentals and key price drivers. We pre-sent several carbon price scenarios using our proprietary Carbon Price Forecaster model and use these scenarios within our mid-term Nordic power model to examine the impact of CO2/fuel prices and hydro inflow levels on NordPool system prices, level of power flows between countries, generation levels and emissions.