Power from shore to Utsira High : evaluation of the project’s cost efficiency and its effect on Norwegian and European emissions

Abstract

This thesis evaluates the cost efficiency of a power from shore (PFS) project on Utsira High and its effect on Norwegian and European greenhouse gas emissions. The Ministry of Finance’s framework for economic analyses is applied in order to calculate and determine the project’s costs for the Norwegian economy and its national emission reductions, leading to the abatement cost. The abatement cost is compared with the expected price of EU ETS allowances in order to determine the cost efficiency of the project. Furthermore, the effect on European emissions is evaluated by applying relevant knowledge of the Nordic and European power markets and by referring to recent studies in the area. We have calculated an abatement cost of NOK 1163.37 per ton CO2 reduced. EU ETS allowances have a current price of NOK 28.66, with an estimated value of NOK 305 in 2020. We therefore conclude that the project is not a cost efficient measure for Norway to fulfill its international climate commitments. Although the analysis shows that the PFS project will reduce national emissions by 31.91 million tons CO2, we show that the project is unlikely to have any effect on European emissions. In order to reach non-binding national goals specified in the Climate Agreement of 2012, Climate Cure 2020 (2010) states that all measures with abatement cost up to NOK 1100 per ton CO2 must be implemented. As the abatement cost of the PFS project is close to this cost, the authorities may press for implementation if the national goals become binding commitments in the future.