Impact of the EU’s Green Deal Policies on the Norwegian Power Sector and Macroeconomy

The European Union (EU) is the largest trading partner for Norway, a small open economy with an electricity market integrated into the EU market. To reduce greenhouse gas emissions, the EU’s Green Deal policies will affect the Norwegian electricity sector and national economy. This study estimates the effect using a computable general equilibrium (CGE) model coupled with a partial equilibrium energy sector model. Our results show that in 2030, the EU’s Green Deal policies reduce Norway’s GDP and total export by 0.8% and 14%, respectively. The policies also affect domestic industries unevenly, encouraging production in low-energy-intensive sectors and electricity generation, and discouraging production in sectors like iron and steel, non-ferrous metals, and fossil fuels. The EU’s Green Deal policies also push up the variable cost in the system for producing district heat and electricity by 125%, total electricity production by 11%, and the average electricity price by 16% in Norway. These effects call for proper policies to maintain industrial competitiveness and avoid a regressive effect on income distribution.