The Danish electricity reform

In the spring of 1999 it was decided that the Danish electricity sector should be reformed. One of the main purposes of the reform was to increase efficiency in the electricity sector by introducing competition where possible, and regulate where necessary. Another important goal was to bring about a reduction in the emission of CO2 during electricity production. This paper reports on an analysis that reveals several weaknesses in the reform. Some elements of the reform are unnecessary, while others are inadequate to achieve the targets stated. These elements create the risk of inefficiency and of failure to achieve the goals of the reform. Simulations of the reform using the economic model Elephant show that some of the less satisfactory elements will indeed result in inefficiencies, especially in terms of achieving the environmental targets. Several elements of the reform have not yet been worked out in detail. These details could have a major influence on the results of the reform.