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Climate policy measures aimed at power markets influence the cost structure of producers and price patterns, and are therefore likely to influence the production decision of power plants, even in the short run. When power plants have costs related to starting and stopping, decisions on short-term production are intertemporal, and the conventional 'price vs. marginal cost' rule is not sufficient to predict production in thermal power plants. This paper analyzes how the optimal production decision is influenced by climate policies: namely, CO2 trading mechanisms, the expansion of renewables and the interaction between these policies. The main result is that higher power price variation (as a result of increased wind power production) makes the thermal power producer less flexible, but the effect on emissions is ambiguous. A CO2 cost (as a result of an emission trading system) increases the flexibility of the producer and the operation decision resembles the conventional 'price vs. marginal cost' rule more. This implies lower emissions. However, when the CO2 price is coupled with higher power price variation, the positive effects may be reversed since the two policies have opposing effects. [ABSTRACT FROM AUTHOR]

Ambitious energy efficiency goals constitute an important part of the EU's road to a low-carbon society. While the introduction and restructuring of climate policy instruments is taking place rapidly, knowledge of how the instruments interact is lagging behind. This analysis looks at the 2030 policy goals for residential energy efficiency and how they interact with targets for restricting CO 2 emissions. The case studied is Norway, which has committed to new climate policy targets for 2030 in line with the EU. A multi-sector computable general equilibrium model of the Norwegian economy is used to explore the cost, emission and energy rebound effects of alternative interpretations of the policy underlying the proposed 2030 energy efficiency goal. The model incorporates bottom-up information on energy efficiency investments and takes account of both energy and process emissions. The economic costs of the energy efficiency policies are found to be high: equivalent to a welfare loss of 1%. The costs rise when energy efficiency policies interact with carbon pricing. Economy-wide rebound amounts to nearly 40%, mainly because energy-intensive, trade-exposed industries expand. As emissions from these industries stem from both combustion and industrial processes, total CO 2 emissions increase by 2.4%. [ABSTRACT FROM AUTHOR]