Removing Policy-based Comparative Advantage for Energy Intensive Production: Necessary Adjustments of the Real Exchange Rate and Industry Structure

Torstein Bye and Erling Erling Holmoy

The Energy Journal, 2010, vol. Volume 31, issue Number 1, 177-198

Abstract: Increased transmission capacity and diminishing returns to scale in power production capacities have raised the opportunity cost of electricity in many countries. The resulting market changes have often been counteracted by policy, i.e. subsidized electricity prices to for instance energy intensive industries. Firm data, emphasizing cost heterogeneity, confirm that a large share of Norwegian energy intensive firms would not be profitable in the long run if they lose their present electricity subsidies. However, CGE estimates show that removing the subsidies allows a tax cut that is more than sufficient to bring about the changes in relative prices needed to restore internal and external balances.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2010
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