Multiple instruments

Standard economic theory provides simple and clear advice of how cost efficiency may be attained in the presence of imperfect markets and externalities. However, industry interests, concerns for regional settlement, income distribution and public revenue aspects imply political conflicts. Contradictory interests and unclear policy effects weaken the instruments.

Project details

Project manager
Cicero, SNF/The University of Copenhagen
The project is partly funded by the Norwegian Research Council
Project term
01.01.2008 - 31.12.2010
Project status
Research field

About the Project

Additional to the direct energy- and environmental instruments, a range of additional instruments are introduced, which in essence aim at the same problems. Examples are green certificates and subsidies to non-carbon technologies to reduce emissions by support to renewable energy sources, energy taxes and white certificates to reduce the general energy use. Rather than governing by the principle of one measure per target, multiple instruments are added. The effect of only one instrument may be hard to estimate, while multiple instruments increase the problems of identifying the policy effects.

In this project, we analyse:

  1. To what extent and how does the menu of energy related instruments deviate from recommendations based on economic theory?
  2. What are the main consequences of this deviation, particularly with regard to energy markets, emissions, and welfare and income distribution?
  3. How do factors linked to political processes at national and local levels affect the design of policy measures, and what are the barriers to implementing first-best instruments?

The project consists of four work packages (WPs), for which SSB is responsible for three. In WP1, we have studied deviation between practical policy and economic theory. In WP2, we will develop and analyse a numerical model including multiple instruments. In WP3, for which Cicero is main responsible, we study the impact of pressure groups for the development of the Norwegian quota system and in European countries. In WP4, we interview politicians in order to reveal their different motives and how these are weighed in the determination of climate and energy policy.