Working Papers,
Copenhagen Business School, Department of Economics

Abstract: The 2021 energy crisis comes at an inconvenient time for the green transition agenda and can affect disposable income, unemployment and inflation. This paper discusses the likely effects and implications for energy networks and policy. The economic principals behind the crisis may seem intractable, but they are familiar. A combination of known factors has caused the crisis. Europe is dependent on gas imports and a shortage of supplies has contributed to rising gas and electricity prices. The low-price elasticity of energy demand and supply makes them susceptible to price volatility even with modest quantity shocks. Higher CO2 abatement costs, has forced some firms to increase their reliance on natural gas, which in turn drives up the gas prices. The crisis has brought forward the need for some overdue measures and policies including a more robust transition management, new transmission capacity, more storage, balance of contract types, and network regulation models.

Keywords: Natural gas; Carbon price; Economic recovery; Integrated energy markets

JEL-codes: Q30; Q41; R11

12 pages, First version: October 19, 2021. Revised: November 2, 2021.

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