European Electricity Co-operation: The Role of Import and Export in CO2 Reduction

Miss Kwanruetai Boonyasana, The University of Leicester

In order to limit global warming and avoid the devastating effects of climate change, the European Commission proposed a reduction in greenhouse gas emissions for the European Union (EU) to at least 20% below 1990 levels by 2020. As with most economies, the greater part of carbon dioxide (CO2) emissions in Europe comes from the production of energy, especially electricity. To meet targets aimed at tackling climate change, the EU is trying to decrease reliance on electricity generated from fossil fuels while promoting electricity production from renewable energy sources. However, renewable energy has problems with regard to economic costs and instability of electricity supply. Nuclear power generation involves issues of safety and radioactive waste management. Therefore, a further option should be of interest.

Since 1990, growth in world net electricity generation has outpaced growth in total world electricity consumption, and this surplus is expected to account for one third of electricity generation by 2035. This suggests that international trade in electricity could prove beneficial by increasing efficiency of electricity markets as well as decreasing levels of CO2 emissions which have become a problematic social cost of electricity generation. This study examines whether international co-operation regarding electricity import and export within Europe can reduce CO2 emissions. Panel data analysis is employed to determine the CO2 emissions function using 45 European countries’ yearly data from 1971 to 2007. Econometric testing for ordinary least squares, fixed effects (within) and random effects estimation methods is used to select the one most appropriate.

Two models explore the effects of electricity generation, import and export on CO2 emissions, with EU membership being included as a further independent variable in the first model. Membership of the EU is used to investigate the impact of the EU’s energy policies in helping countries to decrease their CO2 emissions. The results show that, for the 27 countries involved, EU membership is not significant in reducing CO2 emissions. However, because this study does not employ data beyond 2007, it might be premature to judge the effect of EU energy policies on CO2 emissions. From Model 2, electricity co-operation with regard to import and export is found to be highly significant in lowering CO2 emissions. Such international trade in electricity can have a positive impact on efficient management of decarbonisation of energy supply and be instrumental for European governments in the fight against global warming.