| dc.description.abstract | The severe estimated effects of climate change have induced European governments to seek alternatives to fossil fuel as an electricity generating source. The European Union aims at reducing greenhouse gas (GHG) emissions by 40\% in 2030, compared to 1990 emission level. In order to do so, the European Commission has adopted ambitious energy- and climate targets. Investments in modern infrastructure to better integrate the European electricity market, are one of the strategies implemented to reach the targets, arguing that interconnecting transmission cables will facilitate a larger share of renewable electricity. The past few years have seen a great expansion of solar- and wind power production in Germany. This has caused for a large power surplus in periods where wind- and solar capacity is high and hence induces large price fluctuations in the German electricity market. As of 2020, the German and the Norwegian electricity market will be coupled, implying that abundant renewable energy in Germany can be stored in Norwegian reservoirs, and exported back to Germany when renewable energy is scarce. Thereby, facilitating electricity trade will lead to a better resource utilization of the existing renewable energy plants. However, trade will also affect the electricity prices, and it is not obvious how these price changes will affect the optimal production level of alternative electricity generating sources in Germany, namely fossil fuels. Therefore, it is of interest to analyze the effect on emission level of opening up for electricity trade. The thesis provides for an in-depth theoretical analysis of the price dynamics resulting from electricity trade. By introducing certain extensions as well as assumptions to a dynamic model developed by Førsund (2015) the impact of electricity trade on total electricity production are thoroughly analyzed. Furthermore, I develop a model to analyze how investments in intermittent energy sources are affected by the price changes resulting from trade. The theoretical analysis reveals that opening up for electricity trade between two countries with different electricity generating technologies will affect the electricity prices in both countries. Through the changes in electricity prices, electricity trade affects both optimal production level of thermal power as well as investment level in intermittent energy. I find that the relative price change as well as the intermittent capacity coefficient determines the overall effect on total emissions, which in turn is ambiguous. However, increasing the share of electricity generated from intermittent sources without interconnecting transmission cables will put the security of electricity supply at risk. In conclusion, cross-border transmission cables may serve as an important catalyst to increase the RES-E share and thereby to mitigate climate change. | eng |