OECD Trade and Environment Working Papers

Selected studies addressing the policy interface between trade and environment prepared for use within the OECD. They address such issues a liberalizing trade in goods that affect the environment, and trade in environmental goods and services.


Cross-Border Trade in Electricity and the Development of Renewables-Based Electric Power

Lessons from Europe

The uptake of renewable energy (RE) has been identified by a number of governments as a primary means for mitigating CO2 emissions from the electricity sector, and for making the transition to a low-carbon economy. The electric power output of some RE technologies, however, including those based on intermittent wind and solar energy, can vary considerably over short periods of time and thereby introduce instability into the electricity system. The risk of instability increases with higher shares of intermittent power sources connected to the electrical grid. Different means have been used to deal with this intermittency problem. Cross-border trade in electricity appears to be one of them since it enables countries to gain access to a more diversified portfolio of plants, producing over a wider geographic area. Preliminary results from an examination of the European electricity market confirm the importance of cross-border electricity trade in increasing the effective capacity factor of intermittent plants in the context of a growing share of intermittent renewables in the power sector. There are a number of policy issues that must first be addressed though, with some financial and administrative incentives provided to variable RE technologies discouraging RE producers from fully participating in electricity market operations and exerting downward pressure on wholesale electricity prices. The positive contribution that cross-border trade in electricity can make to address the variability problem not only depends on addressing challenges that renewable-energy technologies pose to electricity markets, but also necessitates the existence of an efficient cross-border electricity trading regime. Addressing those regulatory and administrative measures that are inhibiting growth in cross-border trade and the smooth operation of regional electricity markets would therefore help increase the potential for trade in electricity to facilitate growth in renewable energy.


Keywords: trade barriers, environment, renewable energy, electricity markets, trade
JEL: L98: Industrial Organization / Industry Studies: Transportation and Utilities / Industry Studies: Utilities and Transportation: Government Policy; Q56: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth; Q42: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Energy / Alternative Energy Sources; L94: Industrial Organization / Industry Studies: Transportation and Utilities / Electric Utilities; F18: International Economics / Trade / Trade and Environment
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